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In part one of this exclusive interview, Equity Trust Educational Speaker, John Bowens, sat down with Ryan Wright of Do Hard Money to discuss how he got started in real estate, what mistakes he learned as an investor, how he grew to own his own business and what Do Hard Money is all about.
John: Really excited to have Ryan meet with me today. Ryan is an Equity Trust client. He is a real estate investor, licensed agent, he has been real estate for nearly two decades, I believe, if not more, he has run businesses. He runs his own real estate business now. His company is Do Hard Money.
And so I thought what better than Ryan right to be on today’s call with us to educate other Equity Trust investors or individuals that are interested about what does it take to get involved in real estate? How does it work, and how to do it with a self-directed IRA. So, Ryan is a real estate practitioner as well as a self-directed. Thank you so much for joining us.
Ryan: I’m happy to be here. Thanks for having me.
John: Absolutely. We’re going to jump right into it. Ryan, for our audience, if you could start off with talking a little bit about, you know, what’s your philosophy in real estate?
How did you get involved in real estate? What was the purpose for you in really getting you to where you’re at today and what your business looks like today?
Ryan: I always tell people, I don’t think I really had a choice.
My grandpa was an HVAC contractor. On the side, he’d buy properties, fix them up and sell them before HGTV and all those things were popular. My dad was a chiropractor. And he just knew the way to wealth, even though he had his day job. And I think this is a really important point because a lot of us have that situation. He’s had his day job, but he bought duplexes, triplexes, etc.
He’d buy one, he’d fix it up and sell it. I spent the summers working with my grandpa fixing up a three-plex into a six-plex and painting and carpeting. There’s a lot of sacrifice that happens early on to make that a reality. But with time, you know, when I saw that happen over a decade, I saw those property values go up, I saw money be manmade. So I knew there was money in real estate.
And that’s kind of where it all started for me. I got my real estate license, and then I started helping people then I started doing. I kept buying plexes and rentals and I sell or I helped other people fix and flip. Then I started fixing flipping then I started lending. Now we provide tools and services to help other people wanting to get into the real estate investing game and capital as well. So that’s kind of the quick, the quick version.
John: Awesome, thanks, Ryan. And we were talking before this and sharing some of our, I guess you call it, you know sort of war stories and talking about on the shop floor, what happens when you’re running a real estate business as either a part-time investor or full-time investor. I understand that there are folks out there that are part of our group that are full-time investors. And they’re also people that are part-time investors.
I consider myself a part-time investor. I spend most of my time representing Equity Trust Company and teaching and educating other investors on how to utilize a self-directed IRA. And then I do my own investing with my self-directed retirement accounts on my own time.
We were sharing our first deal stories. I know for me, I was absolutely filled with fear. And all I had at that time was $23,000 in my retirement account. I wanted to invest in real estate and I made a private loan to a real estate rehabber. I was very fortunate to get my money back in less than six months, and it was all tax-free. It was that first deal that then catapulted me into the second and third and the fourth, and so on and so forth.
Could you share what that first deal looked like for you?
Ryan: Yeah, I mean, the first deal for me was ugly. You know, so I was 21 years old, I had seen my dad buy plexes. And so I bought a duplex, I probably paid full retail for it even though it needed work. I was just so anxious to get into the game. And the plan that I had was to turn the duplex into a three-plex.
I didn’t realize you had to talk to the city and get their permission and we had parking issues. So I turned it into a three-plex. And then the city came out and said we had violations and then I had to turn it back into a duplex. Then I turned it into a mother in law. And then I ended up moving into the property. The idea was to buy it, rent one side or two of them, and then live on the other.
In the end, one of the blessings of real estate is if you can, if you can hold on to it, you’re usually going to make some money, and so years later, even though I bought it full retail and made probably every mistake you could have in the book, I ended up making money and it catapulted me into buying the first house that we actually bought to live in ourselves that wasn’t an investment property.
But yeah, it was is. It’s one of those things where you can talk about the temperature of the water, you can put the thermometer in there. But until you actually jump in, you don’t actually feel what it feels like.
John: Yeah, and I’m the opposite. I started in private lending, and now I own rental property.
Ryan: And private lending could certainly be a great entry point. But you got to do your due diligence on deals like that as well.
John: Right. And, you know, I could certainly tell horror stories of deals that went south or of deals that unfortunately didn’t pay off to the expectations that I had.
Ryan, you also have experience with private lending, which it sounds like came after you actually got involved in owning physical real estate?
Could you speak a little bit to your private lending experience, and maybe even what you do today. Some people might refer to it as hard money lending, but I like to refer to it as private lending.
Ryan: Yeah, no, I’m with you. Yeah, I am an investor first. That’s kind of where I came from. So a lot of people come from the banking world and get into money, lending money, I came from being an agent to being an investor. And one of the things I found there was just such a need for hard money, private money in the marketplace, there was just such a need.
When I was doing my first deal, my first fix and flip, I didn’t know how to get the funding for it. I had some money, I didn’t have a lot of money, I had good credit, but I didn’t have amazing credit. And I needed somebody to do a deal for me.
I found a guy named Dan and he funded the purchase the rehab didn’t have me make any payments until I sold the house. And that guy literally changed my life. So as I’ve done my own fix and flips that I’ve done wholesaling, as I’ve done rentals, I’ve always wanted to be able to help other people as well. And lending was a natural fit for that.
One of the things that we do now is will we lend money. We’ll end the purchase, we’ll end the rehab, lots of times, we’ve been the closing costs if you buy a good enough deal to people. And what we do is we take private investors that have capital and we have people that need money, we vet the deals and find those and matchmake, the two of those together, so that people with money can have good opportunities, and people that need money can get access to that.
When put a platform together with those, we can take care of those transactions for people. So that’s kind of the big stuff that we’re doing right now.
John: That’s great. And, Ryan, I’m glad you brought that up, because one of the questions that a lot of investors will have about Equity Trust and self-directing a retirement plan. And how does that work from a financial institution perspective.
We don’t provide tax legal or financial advice. And we don’t do due diligence on the investments that individuals make, it’s up to the client to direct the funds, they give the direction to Equity Trust, and we process the transactions. We provide a lot of education and training and information, but where we don’t cross the line is providing advice for doing a background check on a borrower or due diligence on a specific investment to determine suitability for that individual’s portfolio.
And that’s really the beauty of a self-directed IRA is the ability to be able to take control and make all of those financial decisions. And you’re obviously a great representation of doing that, performing the due diligence. I know some failures along the way that you’ve learned from in order to you know, do better do a better job of performing that due diligence, as it pertains specifically to private lending.
Could you share a little bit about maybe one of the experiences that you’ve had that maybe wasn’t as favorable? And what the lessons were that you learn from it from a due diligence perspective?
Ryan: Yeah, absolutely.
There was a property in Virginia I was actually the private money lender. We gave a loan on the property. And one of the things that we found out pretty early, the borrower ended up not doing the work like they said they were going to do.
Keep in mind, it’s all about risk reward. It’s this risk reward, how much I can charge versus what they’re doing. But on this specific property, the borrower didn’t finish the rehab. So and I think where we could have done a lot better and we’ve now changed this is ensuring that work got done by doing forced inspections, getting people out there, making sure that work was getting done on time.
The second big problem that we had is we’ve had work get done, but the quality, the workmanship just wasn’t there. We had an inspector go sign off on something saying this was good. But it ended up that it wasn’t good. And it had to be torn out and redone all over again, which is really expensive to pay for it twice. So we ran into some situations like that.
Another problem was this little house was in a pocket of just really bad area, everything around, it was pretty good. But there’s just this little pocket, that was just a bad neighborhood. And we looked at this and looked at values, but it really seemed like there was enough values in the area. I couldn’t go more than just a few blocks to get values because the ones in this specific neighborhood were selling drastically less than the ones just a few blocks, you know, five blocks away a mile within the mile radius.
We’ve learned so much since then. But the idea is, number one, don’t overlook comparables.
I find that’s a big thing that private investors make mistakes on is they really look for the most expensive house that’s ever sold and say this is what it’s going to sell for. And we flipped that and said, let’s think like a buyer thinks. A buyer is going to say what’s the least expensive homes that are out there.
The other thing is how we manage in our contractors and what we require and put them through and make sure they’re licensed and how we do inspections. I think we lost $30,000 on that loan that we actually gave. And it’s really easy to cry about that I hate losing money on any individual loan. But keep in mind, I have to look at the overall portfolio and how many loans I have out there and what my rate of return was on all of the loans that I was actually doing
I can do a few loans to make up that loss pretty easily. But I can also not have to go through those problems and get some help with due diligence. And that’s not going to solve everything, you’re still going to get some bruises. But it should eliminate a lot of the big problems that you’re running into if you’ve got some due diligence that’s being done appropriately.
John: Right, got it. What would be the best first step for someone to get started in that particular space?
Ryan: Yeah, I think it depends on your experience level, like if you have some background.
If you’re saying they don’t have experience in real estate, let’s say it’s a doctor or lawyer or CPA or whatever the case is, that’s got money, high income, one thing they can consider is finding somebody to help them like a mortgage broker or somebody that has experienced doing due diligence, something like we do, so that they can help them say, here’s the rules we recommend you play by. And we’ll only bring you deals that fit these rules.
The big mistake people make is they overvalued the property and they underestimate the repairs. In addition, they don’t do a great job on the project management getting the project done on time and on budget.
Ryan Wright, DoHardMoney
One of the biggest problems you have, if you don’t have the real estate experience is finding deals. Finding deals is hard, we get over, I don’t know, 200 loan applications, we end up closing on a dozen of those in a month.
Those are like the three Cardinal sins:
And anything you can do to make sure those three things are happening is going to be put you ahead of the game.
The other thing that you really run into is it’s a risk and reward. Some people may say, Oh, I saw this guy charging five points. And, you know, I’ve seen this guy charge in two points and 12percent or 15percent. net. So it’s all relative because the reality is you take on more risk.
If you’re working with a borrower that’s never done it, you take on some more risk. If you’re working with a borrower that has not a lot of money into it, you take on some more risk.
If you take on a borrower that doesn’t have the best of credit, you take on a little bit more risk. You know, if you take on a borrower that has maybe had some experience in the industry, and has done a fix and flip, you take on a little less risk. It’s this whole risk-reward ratio.
And one of the things I’d say for people just getting started is to know where your tolerance is, and maybe you need to bucket out your money and say, “Hey, I’m going to do lending, I’ve got a half a million bucks or a million dollars, whatever the case is, I’m willing to put 20percent into higher risk loans 20percent into, you know, your easy loans and 20percent or 25percent,” whatever the ratios you want to do there and bucket that out for yourself.
It’s going to be really tempting to do some of these loans that are really sexy on paper where they make a lot of money, but there’s a higher risk that comes with that.
Whereas if we’re dealing with loans that are or maybe a safer loan that are produced a lower return so realize there is a risk-reward. Not every borrower is created equal. Not every property’s credit is equal. You’ve got to look at it as a holistic approach.
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