Dave Debeau [00:00:09] Everyone, Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in from Beautiful Wealth, Ontario. We've got Susan Flanagan. And Susan is a very experienced real estate entrepreneur. And what we're most interested in here today is she is also a very, very experienced private money lender. So that's going to be the main focus of our conversation today is all about what the heck is this wonderful thing called private money? What's so great about it and why do we want to get our hot little hands on some of it? All right, Susan, how are you doing today?
Susan Flanagan [00:00:47] I'm doing excellent. It's a gorgeous day out there today.
Dave Debeau [00:00:50] So it is. It is. It doesn't seem we are talking a little bit off camera. Doesn't sound like the whole covid thing has slowed you down very much at all, lady.
Susan Flanagan [00:00:58] No, in fact, it's made me busier than ever. But hey, busies. Good.
Dave Debeau [00:01:02] This is good. So, Susan, again, for those folks out there who aren't all that familiar with private money or private lending, can you maybe give us the big picture overview? What exactly is it?
Susan Flanagan [00:01:16] I guess basically what you could be saying is if you cannot get a mortgage with the bank for whatever reason and the situation, you still want to buy the property or need to take money out of the property. You turn to a private lender and a private lenders, an individual or a business, or it could be a group of people, whatever, but it's their funds. It's not bank money.
Dave Debeau [00:01:40] Got it. All right. So I've heard the expression hard money lenders, private money lenders. What what, if anything, is the difference between the two of them?
Susan Flanagan [00:01:53] You know what? I think it's a confusing term because people use it inappropriately. I find really private money is like some people say, hard money is to do with the other costs, like renovation costs or down payment money. So other people say no private money is considered hard money. So I don't even personally, I don't even use that term. If you need money, want to borrow through myself and my lenders, it means that you need to have some collateral, which is security of a property. So I don't know if that answers your question, but hard money is very, very
Dave Debeau [00:02:32] sorry about the distinction I've ever heard is, you know, hard money lenders and from what I've been aware of, are kind of more formalized folks who do it more as a business and perhaps charge charge points on the loan as a private money lender could be your your neighbor who's got some equity locked up in their house and they get a headlock and they loan you that money. But there's pretty much just a straight interest rate. And it's not it's not as professional of a business. But that's one thing I've heard. But I don't know if that's
Susan Flanagan [00:03:10] now, Steve, and that that's now a different way of seeing it. And you're right, though, I just see private money as the Wild West. It truly is. Anything can go. So if I can borrow money from you and you'll lend it to me at five percent, no point bonus. I'm thrilled. That usually doesn't happen, though, for people that are lending their money on a regular basis as an investment. There are certain guidelines. I can use me for an example of most of the lenders I have access to on a first mortgage. It would be anywhere between, say, seven to 10 percent on a first. On a second is usually between ten to fifteen. Now, those numbers aren't necessarily everybody's numbers. I know some people that have paid 15 percent on a first mortgage. I'm like, whoa, wow. That was either a very risky mortgage or you've got gouged. So you see, like, there's so many sold the hook. So using the term hard money in there, I've heard it various ways. Where I mostly hear it is people using money when they're talking in the US. I haven't heard it
Dave Debeau [00:04:13] and not so much in Canada,
Susan Flanagan [00:04:15] not so much in Canada. So to me, it's it's private, it's not bank.
Dave Debeau [00:04:21] It's money that's not loaned by a big institution. Yeah, exactly. OK, so let's let's move ahead from that, because you are not only a twenty five year veteran of active real estate investing yourself, you've done all sorts of different kinds of deals. You continue to do deals. You're telling me off camera you're in the middle of a couple of flips at the moment. But you're also you're not just a private money. You're also a mortgage broker. So aren't you? Just very briefly, just give us the scope of what are the different options for real estate entrepreneurs typically when it comes to financing and maybe just big picture, what are the pros and cons of each of those different big options?
Susan Flanagan [00:05:03] OK, actually, I'll use the example of most of my clients as a. Broker that come to me are other real estate investors, and that's kind of by choice because that's where I network, that's where I'm known. These are my friends. These are my colleagues that I know. So. So what happens on one side of the coin is let's use you, Dave, as an example. You could be meeting private money for one of your deals, but then you could also have money that you want to lend out at times as a lender. OK, so I you could be on my lender list and then also calling me for a mortgage. So the most common scenario might be buying a property. It needs a lot of work. So there's no way the bank is going to touch it. You're going to buy it. You're going to use private money. You're going to renovate it now. You're either going to sell it, you're going to either rent it, or maybe then you'll bring in a JV partner. I actually also try and explain to people sometimes you need to weigh out everything and crunch your numbers, because sometimes people bring in a JV partner way too soon. They do it right at the beginning when they could have done the private part, then brought them in later when they have an after repair value, that's much higher. Another good example why real estate investors use private money is and I just did this on my last project, I took a second mortgage on one of my rental properties. I use that money for my down payment in my rental costs. And then I also took out a first mortgage on the purchase, all with private money again. And this is very expensive when you really work it in there. However, when I looked at all my numbers at the end of the day, I'm still making a decent profit once I flip the property. So sometimes it makes sense to that
Dave Debeau [00:06:46] that people are using private money like you're talking about for a couple of reasons. First of all, it's probably a lot less onerous qualify. Second of all, it's probably a hell of a lot faster than jumping through and getting it through a big bank. And third of all, you know, it's when your debt ratio and all that kind of jazz that the banks are looking at don't line up. This is an option that's out there. But I think I think speed plays a big part in it. Would you agree?
Susan Flanagan [00:07:20] Oh, it absolutely does. And the hassle and that's why I just say, oh, I know the price tag, what it's going to cost me. I don't get any better deals than the next person just because I'm a mortgage broker. I'm going to the same lenders. They don't care if they're lending to me or do you? They have a rate that they want. And so I'm not spending some people like, sure, you can shop around great. Or you can just know what the rates are, workout your numbers and go OK. Does it still make sense to take on this property? But there's many other reasons to why you need private money. I mean, it could be a bridge loan. It could be you're in the middle of selling, but then you need like this can even begin. The list is huge, but the bottom line is it's available and it's fast, like you say, and you don't. The bigger thing you have to qualify on is show that you can pay it back. We want to know the story, the property, the exit strategy. I don't care about your debt ratios. We don't we say we don't care about your credit report. But if it tells me a story about your character that we don't like, then I do care about it.
Dave Debeau [00:08:25] Of course, I'll just make sense. So I would imagine and correct me if I'm wrong, Susan, because you're talking about clients using using private money for second mortgages. That makes sense, you know, because people need a chunk of cash like you're talking about maybe to use to buy another property as a down payment for another property or they need to do some renovations on that property and they don't want to go through all the hassle of qualifying with a bank. I get that. When are people typically looking to use private money for first mortgages
Susan Flanagan [00:08:59] on the ones usually that the bank won't touch because they need a lot of work or you just don't qualify right now? And so that's the other thing going back to the second as well. There could be times that you're over leveraged the works and so your debt ratios aren't working. But if you took out a second mortgage, you've cleaned up all that took a few months. Now you can go back and do a refinance through the banks. So so there are like either way. But honestly, for the purchases, I find it's usually because you're buying properties that you can not right this minute qualify for. And so let's say you can't you use private money, do some work on it. Now, bring in the governor who can qualify, but you're doing it. You may be bought it at three fifty, put fifty into it. Now it's worth five hundred thousand. That new JV partner is going to qualify at a mortgage. Twenty percent of five hundred. There's a four hundred thousand dollar mortgage. So it. Yeah, well you know what I do suggest to a lot of investors though, trying to figure this out on your own. Give me a call and let. Brainstorm before you purchase it, and sometimes, as you know, getting a couple people's input prior is better than making the decision going in no conditions, the works and then finding out this wasn't a great property to even do the strategy with.
Dave Debeau [00:10:25] Yeah, that makes sense. So, Susan, you were saying before we started recording that there's quite often times in places where makes where you see people. Doing a joint venture when they could have and they probably should have gone for hard money first, and why do you think people do that? And can you kind of walk us through a scenario where, you know what the difference would have been if they had just gone with hard money or private?
Susan Flanagan [00:10:55] OK, so the biggest reason I see that people do it is because they just heard that's what you do. They didn't know there's another way. OK, but I honestly myself think the main reason when you would just use a joint venture partner is you have no access to any other money. You have zero. You have you're that like not that broke, but you have nothing to start with. So it's like, OK, that maybe you truly have to bring in a joint venture partner or do a few wholesale deals to build up a bit of a nest egg. But then once you do have some money, whether it be line of credit out of your house, whatever, I in most cases, if people will run the numbers of what it costs them for the financing rather than giving away 50 percent of their asset, they're going to do better that way. So, like, for instance, I'll just use the deal that I just did because my money was all tied up in another project that I have. I thought, OK, well, how can I do this one? If I didn't have access to another property of mine to take money out of, I might have had to turn around and bring in a JV partner.
Dave Debeau [00:12:03] So it's it's just what what I'm trying to say is typically, even though private money could could cost you anywhere from eight to 15 percent or perhaps more, if you crunch the numbers, if you're able to come up with a down payment or whatever is required to buy the property. And even if you have to use if you don't qualify for a bank loan, but you can you could get private money. Even if you're paying a lot more temporarily for that private money, in the long run, you're not giving away half the deal.
Susan Flanagan [00:12:37] Yes, yeah, yeah. I have an example that I do when I do a webinar like I have it on my slides that I give an exact example of a purchase. I think it's a three hundred thousand putting eighty thousand into. I forget the exact numbers, but at the end of the day, what I was able to show people is that there's almost a fifty thousand dollar difference that you could have kept to yourself if you had not done it the GB side. So yeah, it's just another option for people to explore without assuming their only way to do it is to bring in a JV partner who qualifies for the mortgage.
Dave Debeau [00:13:15] God, it makes sense. All right, so it doesn't bother us. But a lot of people want to find out more about you and what you're up to. What should they do?
Susan Flanagan [00:13:23] Well, they can call actually it probably best that they email me and then we could set up a time to have a phone call. And the email address is office. At private money for mortgages, dotcom, and it's the number four, not the word.
Dave Debeau [00:13:40] You just got to write a check you out. They can go to your website, private mortgages, dot com.
Susan Flanagan [00:13:44] Yep, they can do that. And yeah, I look forward to helping people with the private lending side of things.
Dave Debeau [00:13:52] All right, perfect. A lot of fun. Thank you very much. Thank you. OK. All right, everybody, take care. We'll see you on the next episode. Bye bye. Well, hey there. Thanks for tuning in to the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. It is the money partner formula. You can get a PDF version at investor attraction book, dot com again, investor attraction book, dot com ticker.