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Why Private Money Is Important To Success With Dan Zitofsky

Episode 386: Why Private Money Is Important To Success With Dan Zitofsky

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REIS 386 | Private Money

 

One of the great things about real estate is how there are many different avenues to succeed in this business. Someone who proves that to be true in the ways he plays the real estate game is Dan Zitofsky, the CEO and founder of Zitofsky Capital Management. Dan does business in emerging markets where he buys portfolios of distressed notes, reloads them with renters, gets them turnkey ready, and then owner finances to investors. In this episode, he joins host, Mitch Stephen, to talk about selling to investors and private money. Advocating for the ways private money can change the whole landscape of your investing career, Dan shares with us how he was able to grow his business through it and why it is important to success. He also addresses some of the limiting beliefs people have in this industry and how they can go from good to great in this business.

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I have Dan Zitofsky here. He’s sitting in Bethany Beach, Delaware. What a life. This guy has to be making the best of it. He does business in emerging markets like Tennessee, Ohio, Delaware, North Carolina, Alabama, and any place where it seems to be on the move. He buys portfolios of distressed notes and reloads them with renters. It gets them turnkey rental ready then the owner finances those houses to investors. It’s like the owner finance strategy that I use. I’m selling to the end-user, it’s their home and they’re living in it. He’s got a twist on that where he sells to the investor and there’s a renter in the house. It never ceases to amaze me how many different avenues there are to succeed in this business. How are you doing, Dan?

It’s great, Mitch. Thanks for having me on. We’ve known each other for years and it’s nice to be on the show and be with your audience.

We’re happy to have you. I haven’t heard of this strategy before. Are you financing these investors on a 30-year note? What does the note look like when you finance the investors these rental properties?

We do it on a 30-year RAM with a 10-year balloon. Our terms are generally 8.99% to 10.99%. We’re given better money than they’re even saying, “We’re giving better terms than they’re seeing from a commercial lender.” Commercial lenders are doing a 5 or a 7-year balloon and resets. We’re keeping it at ten year. The reason we’re doing that is we’re keeping the note as powerful as we could. There’s this rule of thumb when you’re in a note business that you want to have that 10-10-10. I’m sure you’ve heard of it. It’s 10% down, a 10-year amortization, and a 10% interest rate. We don’t sell off our notes anymore. Back in the day, I know you’re friends with Eddie Speed, we sold a lot of partials because we’ve tried to recapture a lot of money. We enjoy the fruits of our labor and it allows us to sit here at the beach all week and get on the boat and play because we like our notes. We like that passive income coming in. Our goal is not to sell our notes anymore. We hold onto our notes but we still try to put them together as powerful as possible, just in case we want that strategy of either a partial or borrowing against our note using a collateral assignment. We have the two options to do that.

It’s aka hypothecating your note where you pledge it to someone and you borrow against it. I forgot to do something, but I need to do it. I need to pay homage to our sponsor, TaxFreeFuture.com. Watch the 37 little video vignettes there. You won’t believe what your financial advisers are not telling you. We’re going to tell you what they’re not telling you, then you can do with it what you want but it’s powerful. I do a lot of this in my IRAs too and I help people self-direct their IRAs, which is how I got involved with Tax Free Future. I was constantly talking to people about when are you going to quit letting those yahoos in Wall Street throw your money around like it’s a basketball? It’s something they don’t care about.

You can get control of it yourself and get some personal relationships with people where you know their first name, last name, and their phone number. You start doing business with them and you know what you’re going to make, or what you’re going to get if it doesn’t work out as agreed. You know something and you know a lot more things than the stock market is going to do, because what do we know about that? We don’t know what’s going on that ladder for people to inform me when crap is going downhill. Does anyone call you, Dan, and tell you, “You might better make some moves here because in the next couple of days this is going to happen?”

Not at all. I had a conversation with somebody, a very good friend of mine. He used to be a vice president of a large financial institution on Wall Street. He says, “You better be careful because these second-quarter earnings are coming out. You’re not watching them. You don’t know much what’s going on.” I said, “Honestly, I don’t know what’s going on. I’m not in the stock market. That’s not where I play. I play what I’m good at and what my investors are good at.” You’re 100% right. It’s funny how you mentioned this because we had this conversation in the stock market. You have to worry about quarterly earnings, worry about what the insider traders are doing, and worry about what CNBC is going to say about the market. There’s so much you have to worry about. There’s no guarantee but I like the steady business of real estate and being part of the real estate. I like being in the bank as much as I possibly could.

The day these little houses become worth nothing, your money was worth nothing. We’re probably picking up guns and going something. That’s the way I look at it. The day this little Walmart house that this little Walmart person’s living and they’re happy, and it’s all going down. The day that becomes zero is the stock market would have long been gone, and your green paper dollar bills are not going to be worth anything either. I’m hanging on to my houses. I’ll wait for those to be worth zero and then we’ll call it a day, but I don’t see it happening. People got to have a place to live in.

Money is not a bad thing, but it has to be a win-win in any deal. Click To Tweet

People don’t understand this. It’s not being taught in schools these days, but it’s so elementary. At the price point, you can get into a house, if you do seller financing, either as an owner occupant or as an investor, the reason I like working with investors myself and the reason I try not to sell my houses for cash if I don’t have to. I give them the option. If somebody comes to me and I sell them a house for $80,000, and they come to me with $100,000 in their IRA, 401(k), equity or an insurance policy, their Coverdell account or their Health Savings account or whatever it might be. They have $100,000 and they want to buy a house at $80,000. As an investor for cash, they only get to buy one.

The way I do it is I take 30% down or $20,000 whichever is greater so I can sell in 4 to 5 properties. I created on a $100,000 house, of which I could sell them four properties, I created $400,000 and it grows value for them. The tenants are going to pay that house down for them. That’s why I love what we do. We create more wealth. If you buy Apple stock or you buy an AT&T stock, you put your money down, you’re never going to own AT&T, you’re never going to own Apple. You’ll never go to own a small percentage that’s controlled for you to make money. Someone else has to lose money to transfer our wealth, then you don’t get all the tax benefits. Nobody talks about the tax benefits.

If you’re smart, you start looking at the tax benefits of the depreciation, debt reduction, possible appreciation, and possible rent increase. To put $20,000 or $30,000 out on a house and own a house at a $100,000. If it doesn’t go up to $1 in value, it doesn’t happen anywhere else. You can’t create this kind of wealth anywhere else. It’s crazy the amount of wealth that we provide for people in this world, not only for ourselves but for all the people and for what you do. You create housing for people in this world that might not otherwise be able to get those houses because of what banks decide to do. We create wealth and opportunity in this world by what we do. That’s such a blessing. That’s what I love about it. Making money is not hard. It’s what are you doing with that. What’s your legacy? That’s what I love about it.

That’s the power of leverage. You put $80,000 into $100,000 and you get one house, your ROI is very different from putting $20,000 down on five houses. You’re controlling more real estate. You have way more write-offs. If there is any appreciation, it’s times five because you’ve got five of them, not one of them. It starts to grow. I have written extensively on the benefits of the business that you and I do. It’s not just about, we make money. What makes the business greatest is everyone around us wins. It’s called the seven-way win. We had seven ways that it was a winning situation for different prospects, but it turns out I’m starting and writing these wins. Taking the more, it ends up being fifteen wins. A, the renter moved into homeownership. That was a winner for them for about the same price. B, a retired person got to invest with some hard collateral behind them.

If they didn’t get paid, the worst thing that would happen is if they got paid as agreed. The best thing that would happen is if they got the collateral because it was worth way more than they loan. Here’s this guy, he’s not having to lay awake at night, living by the ticker tape wondering what he’s going to be worth in the morning. He knew every day was solid. I’m either going to get my pants or I’m going to get this house. Either way, I’m a winner. The neighborhood’s benefited because we’re buying these crack houses or these dilapidated houses. We’re fixing them up, the taxing authorities won, the school districts and the fire departments, because when we bought these houses, they were on the tax rolls for $30,000.

We fixed them up and they’re on the tax rolls at $120,000. They’re bringing in more tax revenue, then the local economy, the local workers went on and on. It’s a great service to go and rehabilitate or reput into motion properties that are dead in the water. They’re causing problems, bad things are happening in those houses because they’re neglected, and when you change all that, it affects everything around them. Last but not least, Dan and Mitch get to make a little bit of money.

There’s nothing wrong with that. I used to say that. Years ago, I used to feel guilty about certain things, it was my own self-limiting beliefs on how I did business. I didn’t think for me to do something good for this world I couldn’t make money. It almost had to be volunteer donation, that kind of thing. That’s not true. We do well and I’m not going to apologize for that because money is a good thing. What you do with the money, that could be good or bad. I changed my life around that. I used to buy all the cars, boats, and watches. I have a watch collection that could kill a horse. I was a big car guy. I own cars that people only dreamed of. I still am a boat guy but it’s limited. It’s experiences but I take my money and I do a lot of great things with it.

I’m involved in a lot of charitable organizations. I’m building a financial literacy course for youth around the world. I give back a lot. Money is not a bad thing, but it has to be a win-win. In any deal, when you’re buying a property, it has to be a win-win for the seller and yourself as the buyer. When we deal with asset managers and banks, it has to be a win-win. When I deal with my private lenders, I can’t mule them out. I can’t charge them. My private lenders lend money at 5% because they’re so tired of the stock market. They’re tired of the banks. I don’t do that to them, so I don’t mule them out either. It always has to be a win-win.

 

You are doing a tremendous service. You’ve done well over 1,000 houses. You’ve put people in houses that might not otherwise be able to get those houses for whatever reason. It could be credit, income or they don’t have enough credit. There are a number of reasons why. I help investors that might not be able to get loans from banks to buy these properties. They only have $40,000 or $50,000. They can’t afford a house that we provide. I help them build their portfolio to help them with their retirement, to help them with their spouse to stop working, to help put their kids through college. I feel great about what we do and I feel great about making money doing it. I don’t feel guilty at all.

The lucky investors or the lucky people who figure out that it can’t all be about money. There has to be a higher reason. There has to be some side thing that’s equally as important as the money. In the beginning, when you’re broke, it’s about the money. After there’s a transition, hopefully, the sooner the better that it has to be about more than that, because the way I look at it is, I can only eat and drink so much. I don’t want a bigger house, I want a smaller house. I don’t want a faster car, I want something that makes sense for me. I don’t want a bigger boat. As a matter of fact, I believe in renting boats because you think all this stuff, what you figure out very quickly is it owns you.

I feel the same way. I was like, “What’s happening to us? Are we getting older? Are we getting smarter?”

If I own that boat, I’m going to get out and ride around the lake. You get out t

REIS 386 | Private Money

Private Money: If you’re smart, you start looking at the tax benefits of the appreciation, debt reduction, possible appreciation, and possible rent increase.

 

here and it doesn’t start. This boat is telling me I have to go to the shop, blow my whole Saturday, and try to get it started.

Boats break out another $1,000. It doesn’t stop. I agree with you. I’m done with that. My wife and I had this conversation. We drive by these beautiful houses right here on the water. I’m like, “These are gorgeous. I can’t wait until we can downsize and own something small.” I don’t want maintenance. I want to pick up and go when I want, put me on a condo in the water and I’m good. I’ll rent a boat just like you. I think we’re both getting wiser in our older age.

This is the topic I wanted to talk about. All of this happened in the beginning because of private money. Private money can change the whole landscape of your investing career no matter what strategy you’re using. I have $24 million of private money where I pay between 8% and 10%. It’s non-recourse collateral only money. It changed my whole life. I wrote that book My Life and 1,000 Houses. I started that series in 2008. I don’t know how to change it to my life in 2,000 houses. I surpassed 2,000 houses in seller financing in my hometown. I’m not even doing it in emerging markets. I’m staying in my county or contiguous counties maybe. Dan, let’s talk about private money. How important is it to your success?

It’s the only reason I am where I am now. The way I buy assets is a little different from the way you buy assets. I dealt directly with asset managers at the banks. I buy pools of assets. I might buy a pool of 50 to 100 nonperforming notes at a time. To do that, hard money wouldn’t work. Sometimes I’m into a deal, it could be 9 to 3 years before I take that property back. Hard money lenders are short-term, six months, maybe a year. The numbers and financials don’t work. Back in 2008, I used to use a lot of hard money. I got to the point where I was a fix and flipper. I had eight properties ready to close. I purchased them. I rehabbed them. They were sold. They weren’t asked to close. All eight of those at that time, the banks pulled out and they stopped funding those deals. None of those deals closed.

I have three deals that I was contracted to purchase. I had hard money down. I had $5,000 down on each property. The hard money lenders pulled out at that time. I didn’t close on those deals, so that was eleven deals at that time. We didn’t get out of those deals. In the middle of 2013, I estimated a loss of over $2 million and opportunity money, plus I was negative $4,000 a month in 2008 until 2013. In 2009, I never had private money. I had a couple of people here and there for $50,000. I told her at this point I’ll never base my business around a hard money lender or a bank ever again. I said, “I have no control. I don’t have a business. They can shut me down at any time.”

This is 2008 and 2009. They’re going to spend and ask why private money is so important that I put everything else on the shelf away. I said, “I’m going to get the word out that I borrowed private money to people because if you can learn how to raise private money now, you control your business. This becomes your program. You decide how you want to use that money. You decide what kind of interest rates you offer. You control the draws and everything. If an investor or the lender doesn’t agree with you, then they’re not a fit for your program. You don’t work with them. You finally own a business. You don’t have a job. When you’re dealing with hard money, lenders, and banks, you have a job. There’s a couple that still lends, but hard money lenders changed their terms. They want more money down. They’re lending less on ARV. They want twelve months reserves brought to the table. I don’t blame them. They’re protecting themselves and their investors, but if you had all that, do you even need them? I think it’s a mindset. People don’t believe they can raise private money.

They don’t believe how easy it is to raise private money, but what they don’t do is put the time, effort, and energy into building a business for themselves. If they took a little bit of time, effort, energy, and put together a business, I call it the private lending presentation and meetings. If they did that and put a bio, a presentation, brochures and legal docs, they know how to market to potential private lenders. When I tell people, “Get out of your dirty water. Stop hanging out at the local REIA meetings. Stop hanging out with every other investor and paying all this money to these investors that can go out.”

An active investor could make 12% to 20% of that money. They don’t need to work with you where you’re paying 8% to 10% and I’m paying 6% to 8% on my money. I speak at all these events, I never raised money at an event I speak at. Where I raised my most money is hobbies. I’m into boating, I’m in the part of Marina club. I’m into cigars, I go to cigar clubs. I’m into wine, I go to wine events or raise money there. I’m into muscle cars, I go to car events and I talk to people. That’s where I raised my most money.

Private money can change the whole landscape of your investing career, no matter what strategy you're using. Click To Tweet

Let me tell you what he’s talking about. When I used to drink and when I want to socialize or when I get on the prowl to find private money. I’m going to put on my hunting hat, I can’t go and drink where there’s $1.50 beer special. I want to drink where beers are $10, not any special beer, but the same beer that’s down the street for $1.50. It’s the place that I’m drinking. It may not be quite $10 a beer, but it will be $4.50 or $5.50 a beer instead of $1.50. I can have a hamburger at that place with a $1.50 beer for $6. If I have a hamburger, at this other place, it’s going to be $20 if it’s going to be a penny, but that’s where the money is and that’s one of the people I’m sitting down with. I’m teaching people how to use NLP to get them to ask me what I do. They’ll ask me how I do it. I can show them where I get the money so they can ask me, “Can I be one of those guys?” I never asked anybody for money. The goal is to get them to ask me if they can play with me, “Can I play? Can I be in your game? I want to be one of those guys that’s making that money.”

We do it too. What’s important and I ask people because I speak at a ton of events like you do. There are some of them at a very high level. Since we teach people how to raise private money, we got brought in to speak at some of those events. When I ask people who run a bunch of investors in the room, I go around with a mic and I say, “What do you do?” I ask every single person. I can tell you ever unless somebody heard me speak before, not one person has come up with a good 30-second elevator pitch. That’s the first thing you’ve got to work on. When you’re at a five-star hotel lobby bar, which is a great place that you’re probably at, Mitch, doing things. When you’re there and somebody asks you, “What do you do?” they throw up everything they do and they tell them everything and they bore them. If you could pique their interest and shut up, you’ll get people that want to be part of your program. They’ll beg you to be part of it.

I help average people achieve above-average rates of return with idle money and I give them very valuable Texas real estate.

“How do you do that?” They’re going to ask you the questions. Yours are the same as mine. I raise private capital, buy distressed debt for the bank, providing better than average returns for people in their IRAs and 401(k) or cash.

You’re always up in your game too. No matter what you’re doing, when you talk to somebody and you find someone who’s doing something right, borrow it. As long as it’s legal. Add it to your arsenals.

That’s why we’re doing what we’re doing. We’re not getting paid for this. You’re not charging people to read this. We do what we do because we don’t have a scarcity mentality. I love it when I see people doing things the right way. There’s a very big organization out there that some of my paperwork, my students have come back to me with. They told me that this organization was using my paperwork and I couldn’t care less. It doesn’t bother me the least. Whatever it is, they saw my paperwork, they liked it, and they figured, “Let’s put it out there.” That means a lot to me because I don’t live in a world set of scarcity beliefs. I don’t believe in competition. I believe in coopetition as a friend of mine says. I believe people like yourself and I and the greats out there, there are some good people out there that they do these.

That’s why I love to be on because we get offered and I’m sure you do. We get to ask to be in a lot of podcasts and we’re particular on whose podcasts we’ll go on because I want to make sure that they’re doing the right things for their audience, and they’re out to put good content out there. They’re there to help the community. If we don’t do this and we don’t help people, we don’t talk about private money being so important, what’s happening is we’re going to destroy our industry. The reason I don’t do all the financing I always talk about, I said, “If you want to own an owner financing to borrow us, get with Mitch Stephen because he is the expert at that.” I don’t like it because I don’t like to deal with Dodd-Frank, CFPB.

The fact that it’s the person’s homestead, which changes all the rules. You’re a commercial loan. If you have no real rules, you’re probably not capped or the cap is very high on usury and all that stuff. Every state is different in Dodd-Frank depending on their state or their state property code. What an amazing business that there can be so many different offshoots. You get a business that’s tailored to you and your market and your ability to accept risk. You’re a low-risk taker. I have people from 6% to 8% too. I don’t always pay 10% but it’s a matter of risk versus reward.

REIS 386 | Private Money

Private Money: People don’t believe they can raise private money and how easy it is. They just don’t put the time, effort, and energy into building a business for themselves.

 

If someone wants to only loan 40% on something, I can make up the difference. Sometimes I do that because I bought it. Maybe it’s only $50,000 but that takes almost all the risk out of this deal for you. I got a $100,000 house and you want to loan $40,000 in a first lien position. You lower the rate. You compromise with them. I’ll give you that position if that’s what it takes. Can you make me feel a little more comfortable about taking so little out on a property worth so much? It’s common sense. If I’m going to bet you never talk anyone into anything. You state your case and if they want to argue with you or they want to have a lot of pushback.

I talk people out of working with me. I do not take people’s money right away. I’m very particular about who I work with. I don’t know if people believe this and that’s how easy it is to raise private money. I tell people, “I’m not a fit for you. There are a lot of people that will raise money out there and I would think you’re better off with them.” I am laser-focused on what I will do. I don’t work with micromanagers. If I don’t want to sit down and have a beer with you, I’m not going to have your money in my deal.

You will learn very quickly that you can take money from people that are a pain in the ass and it’s not worth it. It doesn’t happen very often, but there’s some money you don’t want to take because it’s not coming from legal sources. If I even smell anything like that, I’m out.

Even with me, I’d rather pay people a higher interest rate. Even if I had to pay 10% for somebody who’s a sweetheart to work with, you want to help them out. You don’t want to mule people out. I have some investors that come to me and say, “We’re happy with 5% right now. If you can get us 5% of the deal.” That’s taking advantage of them. I wouldn’t pay somebody 5%. There are some times we do 6%, 7%, but I would pay somebody 10% if it makes sense on a deal. If I’m very fat in that deal, I know I have no problem. I don’t have to stress myself to cover it and you want to take care of somebody.

When I’m offering that kind of money, it’s for a longer-term. It’s like a fixed longer-term. If they want to do that, I pay 10%. Normally, people want shorter-term.

For whatever reason, for me, it’s exactly the opposite. My people don’t want shorter-terms. My focus is on investors in their IRAs, 401(k), and business owners. I have doctors and attorneys. They’re not touching the money for 15 to 20 years anyway. They don’t want even monthly payments. A lot of them, they’re like, “I’ll take the payment at the end. Don’t even give it to me.” They’ll give you the money for twenty years because they can’t use it. We don’t take it for that. We tell people anywhere from 1 to 5 years. We have the money. My normal is 3 to 5 years. It works for us the way we buy our deals. If I was lending somebody money and I used my 401(k), IRA, Coverdell and Health Savings account. I’m not touching my money until I’m 60 at least. If somebody’s got my money for thirteen years, what do I need the monthly payment? What does that do for me? If it’s somebody I’m starting with, I want to make sure they make payments. That’s a different story.

If you tell people, “I’m going to give you 10% of your money,” if you let me hold it for three years instead of one year, I don’t see it as a problem. In my business, my biggest problem is every time I pay somebody back, they got upset. They’re like, “Do you mean I’m not going to get that check anymore?” I feel the stress of having to put their money back into a deal so fast. I don’t want to put their money in a deal that I wouldn’t rest my own money in. I’m sure you see the same thing. I don’t think a problem is having the money too long. My biggest issue is paying them back because when I pay them back, I feel like I’ve got to rush now to get that money back out there.

If people sent me, “I want five years.” I’ve been borrowing that money on five-year terms for 25 years. They never wanted it back. When I did give it back to them, they said, “Get it back out.” That’s the dynamic between a bank. Banks are always calling you, “When are you going to pay down? When are you going to pay off?” The private person is like, “You’re going to do what? You’re going to pay me off? When can you get it back out?” Do you teach how to raise private money?

Yes. I’ve been teaching this for a lot of years now.

If you can learn how to raise private money today, you can control your business and decide how you want to use that money. Click To Tweet

You have a free giveaway. Tell us what it’s about. You said it’s called the Free Cheat Sheet.

I wrote this myself. When I speak at an event, I always give them out to people, and I like to give something for free to people. I believe it gives to get. It’s my seven to how I do my business. Everything from building a team in an emerging market. What markets do I look for? How do I look for markets? How do I raise private money? It’s a quick cheat sheet. It’s from 6 to 7 pages. It’s a nice little giveaway for people.

I want you guys to go to REInvestorSummit.com/danz. Go there and get your Free Cheat Sheet on the seven steps of how Dan runs his business, and how it’s set up and how he does what he does. I have a very important question for you. I know you see the same thing out there. I’m curious to know, what is the biggest limiting belief that you find people have that stops them from raising private money?

The biggest limiting beliefs I see in this industry are they don’t believe they can do it. They don’t believe they’re worthy of it. They don’t believe they have the experience or the knowledge to do it. We talk to people all the time and we ask questions about, “What’s your biggest concern? What’s your biggest issue?” We hear all the time, “I don’t have the experience. I don’t know how to do it. I don’t believe I know enough people.”

I don’t know people with money.

We’ve raised $30 million. I used it since 2009 and $200 million in velocity. That’s how we’ve turned it. We only have 42 active investors. We don’t have a ton. I want people to understand that. You probably have a lot more than that.

I have $24 million and I have 36 people.

I would have never guessed that. I thought I’m one of the only guys because I hear people talking about they have 100, 200 lenders, and ask how much money they have, “I have $1.5 million or I can get $2 million.” I don’t know what you’re doing. I thought I was one of these guys. It’s almost embarrassing that I only have 42. I keep working with the same people over. I rarely even go out looking for new people nowadays, but I’m always talking about it. I like working with the same. If I don’t want to have a beer with you, I don’t want to work with you. I know this because when we do our holiday parties, we sent 42 invitations out. Not all 42 always have money ready to go, but I have 42 active private lenders and we raised $30 million from that. I’m not saying it to impress you, it’s to impress upon you. You don’t need hundreds of private lenders.

REIS 386 | Private Money

Private Money: Whenever you put something together, you should have a warm audience to give you feedback.

 

When you start, you don’t even need $1 million. I didn’t start with 36 people. I started with my mom and my dad. They’re like, “Prove the concept.” I started out with some aunts and uncles and I then proved a little further and then they started recommending some people. The biggest slowdown in that progression was I didn’t know how to present it to people where they could swallow it. If you tell too much, it’s an information overload. You’ve got to get it down to a concise and meaningful, “A, B, C, D, E, F, G. Done,” or maybe “A, B, C, D, E, F. Enough. We’re good.”

It’s a perfect KISS Method. Present it right and as a professional and don’t spew up everything you know.

One of the top things is to do your damnedest not to ask anybody if they’re interested or they want to be part of it. The challenge is, can you get them to raise their hand and go, “I want to be one of those guys?” “That business model you explained, how are you getting the money? How are you paying those guys? What’s their collateral again? Can I be one of those guys?”

There were some tricks that I do. I’ll give you one for your audience. Whenever you put something together, you should have a warm audience and you should do this for your warm audience, not your cold audience, not people you don’t know yet. You always ask them for feedback, “I’m going to be sharing this with my potential partners in the future. Can you review what I have to let me know your feedback before I present it to them?” Make them read through everything. I’m going to almost guarantee you, if you have a good warm list, somebody on the list is going to ask you, “Mitch, I didn’t even know you were doing that. Can you tell me more?”

It works every single time with every one of my students, and every single one of them has at least raised over $100,000 doing it. Some have raised close to $1 million just on that one little trick alone. Whatever documentation you have, whatever presentation you have, send it out to your warm audience and say, “Can I ask you a favor?” That’s your headline. “I’m going to be sharing this with my potential partners in the future. Would you mind giving me some feedback on how it looks positive or negative?” It will cause them to read through your information without you asking for a dollar. They’ll say, “I didn’t know you’re doing this, Mitch. How do I get involved?” It works every time.

Go to your friend that you know is very financially successful and say, “I’m getting ready to get in front of some people and discuss an opportunity for them. You’re a successful businessman. Can you look at my presentation and tell me, “Am I missing anything? Is there something that jumps out at you that’s a red flag or can you bless this thing for me? Look over it.” He’s a businessman. By the time you finish reading your stuff, he’s going to go, “That’s pretty good. Can I call a couple of your people to see how this has been working out for them?” “Yeah. Call them.”

That’s not all we do, but that’s a part of what I do with my students and it works almost every time.

The thing about private money that I’ve noticed, it’s been the one constant in my entire twenty-plus year career. I have never stopped sniffing the air when people walk by, “Is that guy a potential private lender? Is that lady a potential private lender?” It’s always running through my mind. I’ve learned over the years. It’s part of my DNA now. I can tell who to walk up to.

If we don't help people and talk about why private money is so important, then we're going to destroy our industry. Click To Tweet

I tell this story all the time. My private lender who has lent me the most money in velocity out of the $200 million has put over $8.4 million at my deals. He’s invested the most. I found him in an art birthday party. A family member rented out the room. They did a wine, cheese, and art, which I’m not into artwork. I’m a half a character. I’m a jokester. I’m on there and I’m talking, I’m making fun of the artwork, like an idiot that I am. I’m always joking around. This guy walks up to me and he says, “You know about such and such artist.” I said, “I didn’t know.” We started talking and he knew everything about it. I acted like I was someone interested and I couldn’t care less about the artwork. He started asking me what I did. I gave him my elevator pitch and we had a conversation for about 40 minutes. He’s a nice guy. A day and a half later, I got a call from my wife’s uncle and says, “Dave wants to meet with me for coffee.”

I’m thinking, “We didn’t talk about him investing with me. There was no reason for him to meet with me for coffee. Why am I going to go to Manhattan to meet with him?” My wife’s like, “Just go and meet with him.” I went and met with him. We sat down at that point and that’s why I’m saying. It’s like the millionaire next door. I never in a million years thought this guy even had money, and he wound up investing right away about $300,000 with me immediately. From there, he’s been one of my top investors and this was in 2013.

I find that very successful people, especially self-made people are very quick to make a decision. Once they believe in you, they go all in. Once they’ve applied that and the situation, the paperwork, and the collateral are all real and they agree with it, then they’re very fast movers. They may not even call any references. I do try to make people call at least 4 or 5 my references because I don’t want anyone loaning money to me lying awake at night wondering who I am or what my ulterior motive is. If you’ve talked to these people that have loaned me money for 15 or 20 years, a lot of that can be put to rest. People don’t keep loaning you money decades after decades because they’re not getting paid or they’re having a lot of problems.

The other thing is it’s very hard to judge a book by its cover. I tell the story about he delivers the UPS packages. He was a UPS driver and every day he’d come to my office. I got to know him in that way that you know somebody, but you don’t know him at all, but you know his name. You say hi to him every day, but I don’t know anything about the guy. As private speakers, we learned to listen with different ears. I hear things differently than the average person when people talk to me. I’m at the local big-box grocery store. I get out of my car and he’s getting out of his car, not the UPS truck but his personal car. We’re merging right into walking into the store and I look at his car and it is a piece of crap. He has stuff on the dash. It’s like a hoarder car. Every piece of mail you ever had is on the front.

I walk in and say, “How’s it going? Did they give you the day off?” I was trying to make small talk with him, “How long have you been driving the truck for UPS?” He said, “Twenty-five years.” If you looked at his car, you’d say he’s broke. When he said he’d been driving for UPS for 25 years, I said, “This guy has a hell of a 401(k).” They do this tracking thing there, I knew that. It’s like, “Game on, baby.” I get the camel on and I’ve got everything going. I got the seats going. I asked, “Don’t they have a good retirement like 401(k) or whatever? Don’t they match you when you put it into that thing?” He goes, “I’ve got a 401(k) and they do matching.” I asked, “How much do they match?” I forget what he told me, but it was impressive, 50%. I thought, “They match him that much.”

I said, “A smart guy would have put a lot of money into that.” He caves in. He’s like, “I used to have $1 million in there because I did it every time there was a chance to match, but the stock market screwed me over. It’s only worth like $600,000.” I’m like, “I was right.” It did build the next words out of my mouth, “You don’t have to live that way. You don’t have to live by a ticker-tape forever. If you ever want to talk about that, give me a buzz.” He did and we did. Things are different now.

Don’t judge a book by its cover. There are a lot of people that have a lot of wealth. They can’t touch for years. You have to be 59.5 to get to your IRAs or 401(k)s as a general rule. There are some exceptions. Inherited IRAs are an exception. That’s one thing about TaxFreeFuture.com. We’re telling people all this stuff about the different things that you can do with these tax-deferred and tax-free savings plans because they’re very powerful. You’ve got to know what the rules are. You can’t win a monopoly game if you don’t know the rules to monopoly.

You’ve got to play in a different pool of water than you’re playing in now. They’re not teaching this in school. Your financial advisors are not going to tell you this because they don’t make commissions on it. They don’t even know this. You tell them, “You want to self-direct your IRA.” “You could do that.” “I want to buy real estate.” “You can do that. It’s putting you in a fund.” I don’t know if you’ve done it Mitch, but how many calls I’ve been on with somebody’s financial advisor at one of these companies and we tell them, “That’s great.” They said, “Your client could invest in real estate if they wanted.” I go, “They’re closing on 123 Main Street. I’m going to give you the wiring structure so you can wire funds for that deal.” They are like, “No, they can’t do that.”

REIS 386 | Private Money

Private Money: What stops people from doing a big deal is that they don’t believe they can do it. They don’t believe they are worthy and have the knowledge and experience.

 

I always tell people, “Challenge our financial advisor, challenge her account, and challenge your attorney.” You have to be able to teach people. You have to understand and become a student in the game and you have a lot of training here as well. Learn how people could pay their kids tax-free up to $12,200 a year tax-free. If you teach them how business owners how to do that and to save money on taxes, who do you think they’re going to come to invest that $12,200 that they put away for their kids? Let’s say they have three kids, that’s $36,000 a year under eighteen years old that they could pay them tax-free, and write it off. Those kids could start investing in real estate deals and now those kids could pay for their college education or pay for their own clothes or movies. Once you start doing that, you become a little different than everybody else out there and know that’s when you go from good to great. That’s what I tell my students, “That’s when you come from good to great when you become a content king.”

Almost any business in the world can use a private lender, but the art of raising private money is well worth learning. If you took the year off and went with Dan to concentrate on how to become good at raising private money, it would probably be the most lucrative year of your life because it would be a talent that went on forever and ever. You could never want or lose a deal because you couldn’t find the funds in time. It’s a huge talent that you need to hone and it doesn’t come naturally to most people. You have to sit down and work at it a little bit.

I know the biggest fear out there, people don’t think they can do it. All the reasons why they think they can’t do it is pointed right at them, “I’m too young. I don’t speak English well enough. I have bad credit. I haven’t been in the business that long. I don’t have experience.” It goes on and on with the, “I can’t, I don’t.” Here’s the big news. It isn’t about you. It’s about the deal. Charles Manson should have been able to get this money from prison because he’s either going to repay you as agreed or you’re going to get Charles Manson’s big house that’s worth a lot more. Who cares how many people he killed? Give him the loan and hope he doesn’t pay you. There are other people out there teaching this too. I’ve looked and mine is different.

You want to learn from somebody who’s raised private money and who’s using it for the business. Everybody has different ways. There’s no right or wrong. I won’t teach somebody your way because it’s not the way I raised private money. It takes a little bit from everybody. Put it together and whatever works best for you works best for you.

The pitch for a landlord or someone who’s wrapping a note is different for a pitch from a guy who’s sleeping. The pitches are different. The PowerPoint is different for each one of them. Figure out what you’re doing. Find someone who’s raising money, doing exactly what you’re doing. That’s probably your best bet, although I have looked at all the others like J. O’Connor. They’re doing it completely different but there were things that I gleaned from it. I thought, “I can use that. That was a good piece. That was an elevator pitch.” Can you say your elevator pitch one more time, please?

“I raise capital to acquire distressed assets from the banks and providing better than average returns to people with their self-directed IRAs, 401(k)s, Coverdells and Health Savings.

IRAs, 401(k)s, Coverdell, etc. into my pitch just from talking to you.

Not only I used to say the 401(k) and IRAs, but I get that and people said, “I know I can’t take out my 401(k) because I’ll get panelized.” They started asking those questions and it leads to a conversation without me telling them. I’ve changed it also when I worked with business owners. I helped business owners. I raised capital to buy distressed debt from the banks, helping business owners provide capital for their minors to help them pay for their college. I’ve said that too. I gear it towards who I am, but it is always, “I raised capital.” The first thing I say is, “I raise capital.” “I raise to buy distressed properties that you see on TV, those fix and flips. I provide better than average returns to my investors.” That’s what I would say if I was a fix and flipper.

One thing’s for sure, the fix and the flip industry is very romantic. It’s got a lot of gloss on it and everyone wants to talk about it. As soon as someone hears that you’re involved in the fix and flip business, they want to know more. You can start to hear a conversation, which is a great thing. The biggest a-ha moments that I’ve had in my life, and I’m going to guess it’s true for you, is when you figure out, “That’s why they say that’s the way they do. That’s why it will work for me.” It’s when you plug yourself in and go and finally figured out how it could work for you. A lot of this stuff people believe, “That works for them, but I’m not.” When the a-ha moment comes then you go, “That will work for me. I am one of them.”

The biggest problem people have is their self-limiting belief that they don’t know enough. Click To Tweet

Here’s what your audience also got to understand. You came through even probably before me. I’m doing this for years. I came through in an industry where I didn’t have Zoom, Facebook groups, webinars and events. I have three speakers back in the day. It was Carleton Sheets, Russ Whitney, and Robert Allen. I went to their events and I bought all their stuff, CDs and their books. That’s all I had. I didn’t have anywhere else to go from there. Now, we give so much information out and people do nothing else but take the information. The little bit of information we gave them, they go out and put something together. They don’t know what to put together, but they know to put together something.

They could start researching it or they can go to one of the training and they can fast track it. If they say they don’t have the experience, they can go to a Mitch Stephen and say, “Mitch, I found all these properties in your neck of the woods in Texas. I don’t have any money to pay you, but I’m going to bring you value. I’m going to bring you to properties for free so you show me how to do this. You don’t have to pay me anything, but I want to learn from you. Would you mentor me on doing this?” They’re going to bring you a ton of value.

That’s how I got some of my biggest partners. I didn’t want partners but they were willing to give and prove themselves. Lo and behold, we started doing some business together. I liked them. They were the people I wanted to have a beer with. We would start small and a little deal at a time, then pretty soon, we were doing so much business together. We either have to form a corporation or I’ve got to get you out of my book. I’ve got to form a whole different thing. That’s how it starts. I never said to myself, “I need to go out and find a partner.” They just evolved.

That’s the benefit now and you have the ability to do that. Some people say, “I don’t have the experience.” You do have the experience because you have mentors out there. If you say, “I don’t know enough about the market.” You do know enough about the markets. Why would you invest there if you didn’t know about it? You did your due diligence. You know who’s on your team. “I don’t have a team.” You do have a team. Who’s going to fix the property for you? Who’s going to rent it out for you or who’s going to sell it for you? What realtor are you using? How do you know the value of the area? How do you know the market? Why do people want to live in that area?

People don’t believe they know enough, but they do know enough. The biggest problem is its self-limited beliefs. If they get over that, they can shoot for the moon. I don’t say that these quirky shoots for the moon, but they have more knowledge than you believe they have. They have a great team because they’re learning from somebody. It could be you, Mitch, or it could be somebody else. They’re learning from somebody. They have mentors and if they don’t, they should have a mentor.

This is what I always say. When you find out what you want to do and you are using that and all the free stuff to sort through it all. There’s plenty of stuff. When you find out definitely what the strategy is you want to use in your marketplace, then find someone who’s been doing it well. Research that person. Make sure they’re the person that you want to be on the field and off the field. They’re going to blend at some point. Then write a check because you’re either going to pay the street or you’re going to pay the mentor. There’s no getting around. Knowledge costs money. You’re going to learn it one way or you’re going to learn it the other way. One way is a lot easier, smoother and a lot less tragic.

Paying a mentor should be a lot cheaper than your first mistake. It’s like riding a motorcycle and we had this conversation before. I said, “If you haven’t fallen down, get ready because you’re going to fall down and you’ve got to be okay with falling down. You’ve got to be okay with making mistakes because we’ve all made mistakes. If somebody tells you they haven’t made a mistake, either they are not in the business long enough or they’re probably lying to you.” What I can tell you is I’ve never lost a dollar for an investor of mine. I’ve lost my money plenty of times, plenty more than I can even talk about. That’s what having a mentor was because we’ll put that stop sign up and say, “Stop right there. You’re about to run into a ditch. Stay away from that.”

That’s why I tell people, “If you want to learn owner financing, hook up with Mitch Stephen. Go online and look for him because he’s the expert in owner financing to the owners.” If you want to learn how to seller finance to investors within emerging markets, I’m the guy that does this, inside and out. This is what I do every day. It’s my business full-time. I don’t jump around from different things. That’s what we do. We raise private money and us seller finance to investors. I don’t particularly seller finance. I used to seller finance to owners. I don’t do it anymore because I don’t want to deal with the Dodd-Frank. You have it all figured out. I have people who hit me up all the time. They’re like, “I’d rather deal with owners.” I’d tell them, “Follow Mitch Stephen. He’s the guy that does thousands of deals.”

REIS 386 | Private Money

My Life & 1,000 Houses: Failing Forward to Financial Freedom

I wouldn’t have a clue how to do what you’re doing. I’ll say the same thing. Someone’s afraid of Dodd-Frank. I’ll say, “Talk to Dan. You don’t have to deal with that.” I’m going to get pretty much virtual. You’re not driving around looking at all these properties all the time.

If I’m driving around looking at properties, the only place I’m going is Honolulu, Dubai or the Caribbean somewhere. I’m not going to Ohio, Tennessee, and Alabama to look at properties. I do go there maybe a couple of times and I go there because I want to have a beer or dinner with my contractors, my property managers, and my product. It’s more of a relationship thing. We have this dialed in so much in our industry that we don’t have to go out, drive out there, and see it. I live in Delaware, so I do get out and see properties. I enjoy seeing them and I enjoy talking. This quarantine has me dead. I can’t be with people as much as I want to. I’m a people person. I like getting out and seeing people face to face, joking with them, and having lunch. That’s part of the business I enjoy.

Other people are like, “You don’t have to do that. You sit in the house the whole time.” That’s for them. That’s not the way I want to do business. I like the face to face and shaking your hand. I like looking at you in the eye. Even my lenders, I like to meet with them if I could. Being that we have them all over the place, I do get to meet with them as I travel and speak at events. I do set up meetings with them. We’re doing it all on technology. We’re using Zoom so we don’t let the economy destroy us. We use it and do the best we can do with what’s going on.

I want you guys to get the free cheat sheet and learn the seven key things that Dan does in his business. Go to REInvestorSummit.com/danz. He’s a great guy with common sense, soul to the earth and likes to do it right. Protect everybody in the deal. Make sure everybody gets what they want. That’s why he’s on the show because he’s that guy. I appreciate people like you. There are a lot of bad players in every industry and I hate it when I see the bad players who’re not paying it back filing bankruptcies and doing things. It’s always refreshing to see someone who can look back to a long career and go, “It never happened. It never even came close.” We both believed in that way and we both live that way. I’m glad to have you on. Is there anything you’d like to say to some people who need to go out and raise private money but just haven’t found the nerve?

Get yourself with a mentor and put together a package. Treat this like a business. Don’t just ask for money. Put together a package where you can present what you’re doing. Never ask for money and stay consistent. That’s some things I would recommend you do.

I’ll add to that one bit. Don’t beg for money. You’re out there to do people a favor and get them in a better position than they’re at now. That’s who you’re looking for. Who can you better their position? Those people will say yes a lot faster. You’re offering a better position for people and you need to treat it like that because it comes through in your presentation. People run from beggars. People are attracted to people that can help them. I’d like to thank each and every one of you for stopping by to get you some Dan Zitofsky up there in Delaware.

We’re out of here, boys and girls. Please check in with TaxFreeFuture.com. Learn how to make little bitty pieces of money into great big bundles of money in a tax-deferred or tax-free retirement plan. It’s a neat and well-kept secret. It’s not that anyone’s keeping it a secret but the reason why the rich get richer is they study this stuff, and they know where the laws are and where the cracks in the crannies are. They’re available to every person in the whole nation and the whole world. You have to get off your butt, go there and learn about what they’re doing. The same thing if you don’t want to pay taxes like those rich guys, study what those rich guys studied and create an economy. You won’t have to pay any taxes either. It’s available to anybody in the world that wants to do it.

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About Dan Zitofsky

REIS 386 | Private MoneyInvestor, Speaker, Coach, Author on Creating Passive wealth and Raising Private Money. Entrepreneur and Public Speaker.Partner with investors seeking to invest money in Real Estate in emerging markets.

We specialize in raising private money teaching investors about the Velocity of Money to retire in 5 years or less.

Over 25 years of experience as a Real Estate Investor closing on well over 1,000 real estate transactions.

 

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