Are you a seasoned real estate investor and wholesaler who’s ready to take your business to the next level? If so, consider yourself lucky because in this episode, Tom talked to one of the rockstars in the real estate world. And you have front row seats!
Mike Zlotnik is a long-term investor who has a passion for real estate. He has also been a real estate debt and equity investor since 2000. In 2009, Mike joined Tempo Funding, LLC as a managing partner. At the same time, he was also Tempo Funding’s vice president of funding operations.
In January of 2014, Mike became Tempo Funding’s CEO. Under his guidance and leadership, the company saw massive transformation and growth and delivered strong returns to their fund investors.
Mike is also a member of investor and real estate mastermind groups including Venture Alliance, CA Investors, Freedom Founders, and Collective Genius.
If you are ready to scale your business big time, consider listening to today’s episode a must!
- What hard money lending is
- What the benefits and pitfalls are of hard money lending
- How to find hard money lenders
- What hard money lenders are looking for
- Typical fees and expenses
- What “skin in the game” is
- The the typical length of a loan is
- What the point system is in hard money lending
- What wholetailing is
- Where new wholesalers can find hard money lenders to work with
- Wholesaling Inc – Reviews
- Genesis Capital
- Lima One Capital
- Dominion Lending Centres
- Big Mike Fund Podcast
- TF Management Group LLC
- Email Address: firstname.lastname@example.org
If you are Ready to Explode Your Wholesaling Business, Click here to Book a Free Strategy Session with me right now!
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Hey guys, welcome to another awesome episode of Wholesaling Inc. I have a rockstar on the phone. This is a guy that all of the top level guys know, they all have his number in their phone because he is the guy that you need to call in order to accelerate and scale and just do things that maybe possibly you didn’t think were possible just a short while ago. So I want to introduce you guys to Mike Zlotnik. He is the man, the myth, the legend, and I’m going to let Mike tell you all about what he does, but he is in the area of hard money lender. He is what a lot of my friends and my peers, they’re saying, “Hey, you have a good deal and you need cash. Go to Mike.” He’s a rockstar. He’s a rockstar investor.
He’s a total expert. Everyone trusts them, everyone likes him. He has a history of great results. So I wanted to have him on the show today and it’s going to be an awesome adventure. My name is Tom Krol from Wholesaling Inc, America’s number one real estate training program. Check out our reviews online and if you find a real estate training program with more reviews, I strongly recommend you join their program. So if you don’t know what wholesaling is, wholesaling is the art of consistently finding discounted properties. And this show is all about no fluff, no BS. We’re going to get you right to the right people and right to the right instructions that will help you have amazing results. So without further ado, let’s get started. Mike, are you there?
Mike Zlotnik: Yes sir. Hi Tom, how are you?
Tom Krol: I am great, Mike. It’s an honor to have you on the show. Thank you for agreeing to do this. You are the expert that everyone points to in my circles, so I’m honored. Thank you. And yeah, thanks for agreeing to do this. We’re going to have a great time here.
Mike Zlotnik: Yeah, I appreciate the opportunity to be of service and to help your audience any way I can.
Tom Krol: Absolutely. So before we get started, I want to ask you, could you just first tell us a little bit about who you are and what you do, and how you got started?
Mike Zlotnik: Sure. I live in Brooklyn, New York. I’m a fund manager. It’s a lot more than a hard money. We do hard money as part of the business, but we’ve evolved well past just hard money lending. Married for almost 20 years, four kids and a cat, and busy with kids, as you can imagine. I love real estate, that’s my passion, so I do a lot of real estate investing. And a little different from wholesaling from the point of view that I’m more of a longterm investor. We do some short term loans on fix and flip projects. Obviously pretty familiar with wholesaling through all the work that we’ve done with wholesalers who will flip, and those who don’t. Yeah, that’s what I do. We invest generally for long term and partly what we do, we provide hard money loans on fix and flip projects.
Typically most successful guys I know who become very capable and successful wholesalers, at some point of their career, they try to invest beyond the wholesaling. Again, not to lose the focus, I know the risk and the danger zone is in the fact that if you are a good wholesaler and you start rehabbing, you could lose your shirt. So, I’m not encouraging that, but plenty of people do all of the above. They use their strong marketing to get deals and some of these deals come with candidates for rehabs. And most of the deals they wholesale, they rehab a few, and we’ll look at funding some of those deals. Does that make sense?
Tom Krol: It makes perfect sense. So tell us a little bit about that. I know there are many facets to what you do, and you are a rockstar Mike. I mean everyone knows that in CG, you know all the other places that I… All the other masterminds I’m in and all my connections, they all talk about you. So I know you have a lot of stuff you do. But let me ask you this question. Can you first explain a little bit to our audience what are the benefits? When it comes to hard money lending, what does that mean? And are you lending… There’s a lot of basic questions out there, some people will say, “Well Mike, you know I’m really scared because I don’t have good credit. I’m just getting into wholesaling but I need money for a deal in order to. I don’t want my buyer or seller to know the assignment amount.” Or you know, “My lawyer told me to close on the deal first before I sell it.”
What is hard money lending? Are you lending on the property and the deal? Are you lending on the person? And can you just kind of walk us through some of the basic terminologies and then the benefits and pitfalls of hard money lending?
Mike Zlotnik: Sure. So the couple of things, one thing gets sort of briefly touched on, the transactional funding concept, which we also do. And then we can talk about traditional hard money. So let’s start with the basics. So when wholesaling, you lock a property on the contract and then ideally you assign a contract for a fee. That’s the classic wholesale. And that’s an ideal scenario if that’s what you’d like to do, you’re operating at the lowest risk level and at the lowest cost, because you’re not putting up anything beyond the deposit. And often the deposit is refundable. So you’re doing this at a very low risk level.
The next level up, if you’re trying to flip a property but you can’t wholesale, for whatever reason, you have a big spread, then you have to close, and you’re trying to mask your spread, can’t collect it, that big spread fee through assignment. Transactional funding may come in. So an example would be got a great deal. You got a property locked on the contract for $200,000 and you’ve got a buyer who’s willing to pay you 250, and you don’t think the assignment fee of $50,000 is going to work.
So in that case you can try to set up transactional funding, and traditional funding is not easy to set up. It is possible but it’s something that takes a level of experience. But the way transactional funding goes is as following. You set up both escrows, your purchase escrow and your reseller school, the same closing agent. We strongly prefer it, we don’t like split escrows just to be very clear. Same closing agent, the attorney or the title company has to be kind of friendly to you, the investor, and they don’t have responsibility to disclose the acquisition price to the end buyer. As long as they set up as president of the same company and they can follow instructions, we could potentially provide transactional funding.
Tom Krol: Okay.
Mike Zlotnik: The way it works is you have two escrows set up concurrently, purchase at $200,000 and resell at 250. The end buyer, whoever buys it, typically cash. Getting a mortgage is pretty hard. It’s possible, but it’s hard. But, let’s just say you’re wholesaling to a cash buyer and then they put up 250 in the escrow. They sign their selling documents, they irrevocably commit to a transaction. Then we can come and fund your A to B transaction, we’ll call it a purchase transaction. And then when you have B to C, or the resale transactions funded. The transactional funding is just simply providing wet funds to close first escrow to acquire the property.
Tom Krol: Got it.
Mike Zlotnik: Second escrow is ready to go, fully funded, irrevocably committed. When that happens, that’s pure transactional funding and that is least expensive to you. It does provide the capital to demonstrate independent funds to close A to B escrow when the B to C is ready to go. That’s where the transactional funding comes in.
Anything beyond that, if you have split escrow, if you have second escrow that’s going to be ready to close in two days or two weeks or two months, when you have to hold the title to the property at that moment of time, hard money comes in. It could come in as a bridge load to hold you for a couple of days until the second one ready to close, or if you need to do a fix and flip project.
So the need for hard money, effectively two primary needs, one is just a bridge loan until the second transaction is ready, and the second scenario when you’re adding value to the property. You’re going to buy the property, we need to do a rehab to the property and increase value that way. And that’s where the hard money comes in. Typically providing you with portion of the acquisition money and a portion of rehab money, they’re very different and they’re written very differently. The risk level to a lender with transactional funding is much smaller than on a hard money loan. Why? Because hard money loan, you’re acquiring the property, and if you fail in your rehab, the property will be unfinished. It’s a very different process versus a one day flip.
Does that make sense?
Tom Krol: It does. So I have a lot of questions because I know our listeners have a lot of questions. So the transactional funding, I really understand that means, guys, that Mike is saying, just to recap, is the summary is, you’re going to use that money for a very, very, very short amount of time. And what he’s saying is some of the things to look out for is make sure it’s the same title company, meaning that the deal is not closing in multiple title companies, but essentially that’s just a very fast transaction. And then the hard money lending is for a longer transaction. And Mike, that’s where some of my questions are for some of our listeners.
Number one, I have a few questions around that. What can, number one, our listeners expect to pay? Do you have to pay money upfront and is it based on them or is it based on the deal? So can you kind of walk us through the art of the deal? How do they find hard money lenders? You know, what are the hard money lenders looking for? And what are some of the typical fees and expenses and things like that? Like can it be, does the wholesaler have to put in any money at all? So can you kind of tell us a little bit more about that?
Mike Zlotnik: Sure. So the hard money is a bridge loan. There’s no other way to put it. It’s a short duration loan. Typically banks don’t want to do it because the banks like to lend long term. You may find some banks, they’ll be flexible, and you have a good relationship and you have a good credit. They will underwrite you very different from a hard money lender. The hard money lender typically look at the loan to value ratio. If you’re buying a property for $200,000 and it’s worth $300,000, and the loan to value ratio based on what they’re going to lend you. So let’s just say you’re acquiring a property for $200,000, hard money lender will give you $180,000 loan, and the property is worth $300,000. In this case, the loan to value, so that the $180,000 loan divided by the value of 300,000, is 60%. So they’re providing you what is known, a conservative loan to value ratio, typically that’s what the banks do. So nowadays, the numbers are on 70%, that’s the max that lenders will provide.
Tom Krol: From the bank, or from the hard money lender?
Mike Zlotnik: Hard money lender.
Tom Krol: Got it.
Mike Zlotnik: The banks traditionally will go to 75%. We occasionally push it to 75% with very experienced operators, but yeah, generally speaking, the good old days, the number was 65%, nowadays it’s more like 70% loan to value.
Tom Krol: Just so I’m clear, what you’re saying is, point number one is the amount of money that you can expect to get from a hard money lender is going to be approximately 70% of either… is it the current market value or the after repair value of the home?
Mike Zlotnik: If it’s a rehab project, it’s typically based on after repair value.
Tom Krol: Got it. So if you have a home that the after repair value is going to be $100,000, just for easy math, you can expect a hard money lender to lend you up to $100,000 to purchase that home, and to rehab it or whatever they’re going to do with the money?
Mike Zlotnik: Let’s take a step back. So if the future value is $100,000. If the after repair value $100,000, the lenders will not lend more than $70,000, no more than 70% of the after repair value.
Tom Krol: Got it. So the first number, guys that, you have to be concerned with, is what is the ARV? And expect the hard money lender to give you 70% of that ARV.
Mike Zlotnik: No more than 70%.
Tom Krol: No more than 70. Okay. Now-
Mike Zlotnik: The second element is skin in the game. So most hard money lenders require what is known as a skin in the game.
Tom Krol: Okay.
Mike Zlotnik: And what is a skin in the game? It’s your hard cash participating in the deal. There are a lot of people who would like to get 100% of financing. It is possible to do, but you have to have a strong track record with a given hard money lender. And it is possible that they will extend their flexibility beyond. We do that with top top guys of many years of track record with us.
If it’s a new relationship, we’re going to ask for skin in the game. So skin in the game is typically part of the hard cost needed to run the project. So if a purchase price is… Let’s again, let’s use for the sake of the example, if you’re buying a property for $60,000, and you are rehabbing it for 20, you are all in for $80,000. And the future value is $120,000, giving that as an example. Because they want to see skin in the game, we’re likely going to ask you to bring in, let’s use an example of $10,000 in the deal. Still give you £70,000.
Tom Krol: Got it.
Mike Zlotnik: The loan to value is below 70%, but you’ve got to have some participation. If you don’t have skin in the game, most lenders will not give you the loan because they don’t believe you are sufficiently committed to get the project of a lifecycle. Does that make sense?
Tom Krol: It makes perfect sense. So what skin in the game means is how much money is the wholesaler going to put in the deal himself or herself?
Mike Zlotnik: Correct.
Tom Krol: Okay.
Mike Zlotnik: That number will vary. On a very low end, it’s typically 10% of the budget of the project, purchase and rehab, on the lower end. And on a high end 20/25% I see anywhere between 10% and 20% nowadays is pretty common. So if you’re all in for 80,000, you should plan to have probably anywhere from seven to… You know, or anywhere from $8,000 to $16,000 cash in the deal to get that hard money loan.
Tom Krol: Do the hard money lenders care about… Because I know when I was first starting that would have been a hard number for me to hit. So what if I said, “Well mom, dad, can you give me that 10,000 or, 8,000 to 16,000 and let me use it to buy a property?” Or is this something that you guys are sourcing, saying, “Hey listen, you need to show me you have it in the bank.” If you go to a bank, you know, can I just try to put this deal together with glue and sticks and bandaids? Or are you kind of really watching where that money comes from?
Mike Zlotnik: We don’t care. We don’t source money. These are not underwritten for Fannie Mae, Freddie Mac, Dodd Frank, fees and investment loans. None are compliant with Dodd Frank. What matters is you have skin in the game. Who gave you the skin? You have partners, you have relatives, you have friends, it doesn’t matter. As long as they’ve put up your equity money, or they give it to you in cash, or even if they’ve written you a check, you can take on partners, it doesn’t matter. What matters is that you’ve got to have skin the game.
Tom Krol: So I really want my audience, you guys, I really want you to hear that because that is like what Tony Robbins teaches you, right? It’s going to come down to how bad you really want it. When there’s a lack of resources, you become resourceful, or do you give up? So Mike is one of the prominent hard money lenders in the country, guys. What he’s telling you is it doesn’t matter. So this is key information here. So, okay, now what about… Are there any… I understand in the lending, what can these people expect to pay and what is the typical length of a loan?
Mike Zlotnik: So the pricing of these loans depends very much on size of a loan on loan to value ratio. Your skin in the game. All those vary, and your experience. So depending on the type of a lender, they have different systems how they underwrite these loans. I’ll give you some ranges, and some loans are very competitive. If you have a lot of experience, some of the top lenders want to see how many deals like that have you done? Not wholesale, but rehabs.
So if you’ve done 20 deals in the last year, you have strong track record, you’ve got skin in the game, you’ve got sufficient additional resources, you could probably get very, very competitive rates. And if you’re one of the few initial projects and you have enough money for down payment, the loan to value is good, but again, you can’t demonstrate same level of experience, your pricing will be very different.
So traditionally… I’ll give you some ideas of the costs. What we do with these loans. Even what we do with top people, we don’t negotiate on pricing. We will only work with limited number of people, let’s just call it private club. People who we know, like and trust. We generally charge three points, 3% up front. We can defer them at times, but it’s basically three points and 12% interest rate on annualized basis.
Tom Krol: Can you just explain, Mike, you used the word called “points”. Can you tell me what points mean?
Mike Zlotnik: So if you were borrowing $100,000, one point is $1,000. So if you’re paying three points, you’re paying $3,000 on a $100,000 loan up front. Just in a traditional sense.
Tom Krol: Okay? Now, so if it’s three points on a $100,000 loan, that means I pay you $3,000 right? Now I pay it on day one, right? So is that just part of like the fee of doing the deal? Or is-
Mike Zlotnik: Yes.
Tom Krol: Okay, so I don’t get that money back.
Mike Zlotnik: You don’t get that money back, it’s part of the cost. So think of it this way. If you’re paying three points and 12% rate, and the loan takes six months, 12% rate for six months, you will pay 6% in interest, you’ll pay three points. So you paid $9,000. Also we charge an admin fee. It’s basically a fee to run the deal through our life cycle, through our underwriting. And that generally varies anywhere between 500 and 1000 bucks. So if you’re borrowing $100,000, I’m just going to give you an example, and you are paying three points and 12% rate, you wind up paying $3000 in points, let’s just say 1000 bucks in admin fee, and 6,000 bucks in interest. So roughly it’s costing you 10 grand to borrow the money for six months to run your fix and flip project.
Tom Krol: I think what’s really important for our listeners to understand is that these loans are set out over a year. So if the rate is say 12%, what Mike just alluded to is that that’s only if… You’d only pay $12,000 on $100,000 if you had the loan for a year. But if you have it for six months, you’re actually only paying 6%. So is that called amortized? Is that what that means when it’s…
Mike Zlotnik: Well we don’t amortize these loans. We don’t collect principal, only do interest only. But if you think about this, it’s 12% raise rate ran for six months. Your interest cost for six months. Again, I’ll just give you an example of a six months fix and flip project. This is a typical. I would certainly not encourage any inexperienced investors to get into any heavy rehab. If it’s a lightweight rehab, you should be able to cycle it in six months. If you can’t, don’t get involved in that project.
Tom Krol: Beautiful.
Mike Zlotnik: So why six months? Well, because a light rehab should take no more than two months, and you should have four months to sell the property. If you price it right, it’ll sell.
Tom Krol: You guys. That’s genius advice from somebody who’s done… I can’t even imagine, how many, just out of curiosity, Mike, how many deals have you been involved with? How many projects? It’s just a rough estimate, do you even know?
Mike Zlotnik: Well let me use the number over 1000, how about that?
Tom Krol: Sure. I could imagine. I probably just know over 1000 because everyone who recommends you. So I just want to make sure everybody understands that, guys. Basically what Mike is saying is… And you also, let me just bring up one other point. You said something else very interesting. You said that these loans are interest only. So does that mean, when I’m making your monthly payment to you, I’m not paying the principal, I’m only paying the interest? So that probably helps with my cashflow for the current project. Because it’d be lower, if I was paying principal and interest, is that accurate?
Mike Zlotnik: Correct. It’s a short duration project, it doesn’t make any sense to collect the principal. If you’re going to run the project properly, you’re paying interest only for six months. Let’s start with the basics, right. Before you try to get the money for a project, the project should make great economic sense. So in other words, you should wholesale unless and until you see significant upside through rehab, and you’re able to execute on the rehab. If you don’t have rehab crew, if don’t have reliable contractors who can do it for you, you should not get involved.
That’s the basics. I’ve seen that failure too many times. Good rehabber, gets the property, they feel that they can significantly extract higher value by doing the rehab, but they’re unable to manage the rehab. And that’s where the failure comes in. [crosstalk 00:20:32].
Tom Krol: Oh man. I want every single listener right now to rewind this podcast 30 seconds, and listen to the experienced advice and proven advice that Mike just gave, because everyone needs to hear what Mike just said. That is absolutely… I couldn’t agree more. I’ve seen it myself, I’ve been guilty of it. They think sometimes they’re leaving some money on the table, so they all of a sudden go from wholesaling to becoming a rehabber with no experience. So Mike, this is super, super helpful. So now we have the loan. We have the loan, you’ve given us the loan, we’re making our monthly interest only payment. We’ve given you the money up front, the points and the administration fees. Does the admin fees come off of the back or the front?
Mike Zlotnik: Well, many ways to skin the cat. And I don’t like the phrase, but I use it. It’s just been stuck in my head, because I have a cat, I kind of feel bad about the phrase.
Tom Krol: Okay.
Mike Zlotnik: We can do balloon loans and defer everything. So there’s flavors depending on who you work with. The traditional normal scenario, you pay the points up front, and you pay administrative fee upfront.
Tom Krol: Okay. So the administration fee is upfront. Okay. So that’s easy to understand. Okay, so now I have the loan, and now all of a sudden Mike, I decide that, you know what, I’m just going to put this property on the market and sell it as is. I’m only going to do just a very light, light, light rehab. I only spend $1,200, and now it sells in the first month. Is there a prepayment penalty, where it says, “Hey, well this was supposed to be six months.” Does that come into play at all or not really?
Mike Zlotnik: Sure, so that’s called wholetailing, and a number of folks that we work with do that. So you absolutely have that. It does happen sufficiently often, that’s another very common scenario, where you buy a property through off the market situation, then you want to put it to the market, kind of wholetail it. It is a very valid strategy and if you’re not a good rehabber, this might work pretty well as well. We generally don’t charge any prepayment penalty. Most other lenders will have some kind of prepayment penalty. So typical prepayment penalty could be minimum earned interest is three months. In other words, they don’t want to get repaid faster than three months, if you do repay them, you owe them three months of interest because you just flipped it in a month. We generally don’t, that’s one of our strengths. We don’t mind getting repaid sooner. We don’t charge prepayment penalty, but a lot of lenders do.
Tom Krol: Okay. Another question is, now someone’s listening and they’re saying, “Mike, listen, I’m four months into this. Things are not going to plan. The economy has slowed down. I’m kind of stuck. I don’t know what to do.” What’s going to happen? Do you guys actually do a foreclosure to get the money back? Do you work with them, do you help them? Do you give them an extension? Can you tell me about the people who are a little bit worried to do this? What does that look like? If they’re noticing now, they opened up the floor, there’s a whole bunch of problems and just things are running out. The crew left town, you know, whatever. What goes wrong? What do we need to look out for?
Mike Zlotnik: Well, the answer to the question is we only want to work with experienced people with good track record and abilities to solve problems. I don’t want to have these kinds of conversations. I would much rather have folks reach out to somebody like you and you will be a partner with them. Especially, again, I’m just not trying to say anything else other than that’s why we don’t take all business from the street, unless they come as a strong referral from somebody who we know, we’re not interested.
I am dead serious. I don’t need any more business, because I don’t want to have these conversations exactly.
Tom Krol: Sure.
Mike Zlotnik: So typically, if there’s a distress on a project, I’m just walking you through a process that does happen, and it does happen from time to time, even with good people. The good experienced people will solve the problems, right. But my job is not to be babysitter when the project is failing and that’s why, I’m going to say this again, don’t call me unless you have strong track record and you have strong referral.
I mean this with all degree of respect, but if they’re working with an experienced mentor, coach who can help them through the projects, then they’re coming in with strength. These situations will happen, and we’ll typically try to work it out with them depending on the type of situation.
That’s why the loan to value is generally pretty healthy for us. So we can recover our money if there’s a problem. But if it’s a good honest top grade and they are having problems, we will try to understand what the situation is and what we can do to help. So the general process is how do you solve a problem first?
Tom Krol: Right.
Mike Zlotnik: In other words, what needs to be done to bring the house to an exit point? If there are big problems with the house and they can’t fix it, and they sell it as is, and what price can they get? Most of the situations, good experienced operators will take a loss, but they will act with high integrity and high reliability. As a lender we don’t want to have those issues, but we are people, and we try to understand the situation, and we try to help wherever possible.
If there’s a problem and distress, and a person is acting in their best capacity, we’ll try to work it out. Foreclosure is the last resort, and typically foreclosure happens when you’ve got somebody who can’t solve their problem, they disappear, right? I mean they go [inaudible 00:25:37].
Tom Krol: Right.
Mike Zlotnik: They MIA, we run the foreclosure.
Tom Krol: Okay.
Mike Zlotnik: Most of the times we have an honest conversation, it’s called a loan workout. What do we need to do to get this to an exit point. What does it take? How much additional money you have to bring? To bring in additional money, get the property kind of fixed up, the market corrected. They may ask, “Hey listen, can you give me some break on the interest payments?” If it’s possible then we can work it out.
Tom Krol: Okay. So I just want to go back to one of my previous questions because you may have answered it, but I just want to make sure, because I know a lot of our listeners are going to ask us. Are these loans… I know you, Mike, want to work with experienced and proven people, but what about the guy who’s just getting into this? Are there hard money lenders that lend on the deal, and not on the person or the person’s track record?
Mike Zlotnik: Yeah, there are plenty of big hard money lenders out there that, if you put enough skin in the game, you will get a loan, right? You’ll have to have more skin in the game, you will get a loan, your rate is going to be a little bit higher.
So the range that I wanted to give you is, typically, if you’re a very, very experienced operator and you’re doing files of not small size, let’s just say over 100,000 bucks, and you’re running a volume, you can get the rate down to often, say 9% and say one and a half points, just for volume guys with a lot of track record.
Tom Krol: Got it.
Mike Zlotnik: All right. Probably a typical average product is two points, 10% rate, but if you are less experienced and you don’t have a track record, and you’re doing small loans and… There’s many other variables, it will have to be higher pricing. So there are lenders out there, plenty of lenders who will provide the loan at the higher pricing point. That’s basically how they compensate for the risk.
Tom Krol: The guys and girls who are just getting started and they’re moving from wholesaling into rehabbing, or they need loans and they’re not going to fit your criteria of experience. What is a resource? Where do you even begin to look for hard money lenders? Where do you find these people?
Mike Zlotnik: I mean, I’ll give you some big, big names right now. And again, as I mentioned, do your own research, do your own conversations, but there are big, big, big lenders. One of the biggest in the country called Genesis. There’s also LendingHome, there’s also Lima One, Lending One. There is Dominion, there is Civic. There’s dozens of them that are pretty big shops around the country. And all the names I mentioned, if you just Google them, you’ll probably find websites.
Tom Krol: And these are people who would be more apt to accommodate or extend a courtesy, you know, and work with these people who are kind of a little bit… Not that it’s a courtesy, but these are people who are more apt to work with a newbie type of investor who needs hard money.
Mike Zlotnik: Yeah. In general, my rule of thumb is don’t come looking like a newbie. Have-
Tom Krol: Oh this is brilliant.
Mike Zlotnik: Have a partner. Have somebody who helps you, make you look a little more experienced, number one, and two, they will genuinely help you if you have a problem.
Tom Krol: So tell me a little bit more about that. So if I said, “Okay, you’re a new investor and you need your first hard money loan”, what are the top two, three, four or five things that I need to know that will help my case or help me get that loan? What are some of the tips and tricks to not look like a newbie or to at least help my ability to get that loan?
Mike Zlotnik: Find an experienced operator with a track record who has done, you know, 10, 20 rehabs or a little more, and then partner up with them. That’s number one.
Tom Krol: Beautiful.
Mike Zlotnik: And try and find an experienced partner. So it’s not only experienced, but it’s also the connections. Having crews, so you could have some general contractors who do some rehabs on their own. They can act as a GC, but they really will do it as a partner in this deal. It helps quite a bit to have a partner with a track record, especially if you’re doing… Any kind of rehab, let them make money at the backend rather than just charge heavy fees. Because most of the contractors will keep milking you for money and then if they’re not feeling they’re getting enough… They can’t squeeze you for more payments and don’t have a relationship with you, they’ll just leave the project. That happens all the time.
Finding quality contractors is hard. So if you find a contractor that you can engage on a profit share basis, maybe covering their hard cost upfront, that gives you at least some level of protection that they’ll run the project. Now, do they want to take you as a partner is another conversation, but if you bring the cash, at least, they don’t have to bring the money, and instead of getting paid their profit in terms of fixed fees, but [inaudible 00:30:01], you can give them kind of a carrot, a bigger carrot on the backend. Maybe they’ll do the project that way.
Tom Krol: Wow. I love it. Okay, terrific. Anything else that we need to know? If you’re new and you want to get the attention of these guys that you should go to the table with?
Mike Zlotnik: Yeah, find local folks who are fixed with living. If you find a property you could say, “Listen, I found this deal.” And if it’s genuinely good deal they’ll partner with you. It doesn’t have to be a contract, but it’s just the fact that you’re bringing them a deal that they can run through their system and get you a fee. So-
Tom Krol: Beautiful.
Mike Zlotnik: If you’re wholesaling, you could be wholesaling a lot of deals to them. They are buyers. If you have buyers list, some of the folks on your buyers list are likely rehabbers. So you could say, “Hey listen, instead of making a $10,000 assignment fee. How about if we partner in this deal? This deal has $40,000 spread. I won’t take my 10K up front, but I want 50% of the profit on the rehab and that way you can make 20,000 on the backend.” That’s a typical scenario. And again [crosstalk 00:31:04].
Tom Krol: Brilliant.
Mike Zlotnik: Wholesaling buyers, if you’re comfortable to partner with them.
Tom Krol: So you go to your cash buyer list?
Mike Zlotnik: Yeah, I mean your cash buyer list could potentially be that if you build a relationship with them.
Tom Krol: I love it. I think that’s brilliant. You guys, this is a game changer piece of advice. So Mike, can you tell me what does accredited or not accredited mean?
Mike Zlotnik: Sure. It’s just a definition. Securities Exchange Commission has a straightforward definition. Accredited investor simply…. Well, you could still be a newbie, but if you are a… Say you’re a doctor, you’re retired and now you’re into real estate and you just kind of change your career or you’re enjoying another opportunity. You’ve changed your life, let me put it this way.
Tom Krol: Okay.
Mike Zlotnik: So how about you have $1 million of net worth outside of your primary? The definition is very simple. You have $1 million net worth outside of your primary residence.
Tom Krol: Okay.
Mike Zlotnik: Or you make $200,000 if you are single, or $300,000 if you’re married for the last two years. So you either make 200 grand or $300,000 if you’re married, or you have $1 million. Again, it doesn’t have to be cash. It’s net worth, but you can’t include your primary residence. That’s-
Tom Krol: Okay. Got it. And that would mean you’re accredited. And you have a place where those people can put money into a fund that you manage?
Mike Zlotnik: Correct. If they are current investors, and they can verify their accreditation with a letter from CPA or they could show their assets or tax returns or… they can demonstrate in a verified manner they’re an accredited investor, we can accept the investment in a fund, and they are very passive, 100% passive investors. As a fund manager, my responsibility is to invest the money and secure our investors the return. Does that make sense?
Tom Krol: It makes perfect sense. So basically these guys give you their money and you manage it and you give them a return.
Mike Zlotnik: That’s it. That’s what I do day in and day out, and we invest in a lot of things beyond the hard money loans. As a fund manager we have a really diversified portfolio including multi-families, self-storage facilities, office, some shopping centers and so on and so forth.
Tom Krol: Brilliant.
Mike Zlotnik: So we do hard money. We still do, it’s kind of the good old meat and potatoes of the dietary regiment, but we only do it with folks we know for years would try to take that very seriously. I appreciate new folks trying to enter the space, but I’m not the educator of entry level folks on how to do rehabs or do wholesaling. That’s what you do, you educate and you help them to get to the next level.
And we generally want to work with people who have graduated from your schools, have been doing some investing. They’re a point where they either have the capital to deploy, and they don’t have their own good opportunities, or they have done a number of rehabs and continue to do, and they need a little bit more capital to do more deals, but they are experienced folks.
Tom Krol: I love it. So I want to have a conversation with you offline about being an investor. So I think that’s awesome and I’ll do that. And I think one last question, Mike, before I let you go. And again, thank you for all of this valuable information, is the accredited investors, the people who want to invest in your fund, the rehabbers who are proven, who are doing lot of deals, who might need another option for hard money. Where can these people get a hold of you? Or what’s the best way, or where would you point our listeners to?
Mike Zlotnik: Bigmikefund.com, that’s the podcast page, but that’s… You know, it’s a way to find us, again, bigmikefund.com. And as I like to crack the joke, if they type in bigmikefun.com, it’s not a kinky site, it’ll just forward them to bigmikefund.com. That’s my podcast, by the way, this is where I run the podcast.
They can email, but they need to send me a referral point, and if it’s not a strong referral, I won’t work with them, unfortunately. Again, we only take folks with strong referral, or if want to invest, they can email into email@example.com. That’s T-E-M-P-O-F-U-N-D-I-N-G, dot com. Mike@tempofunding.com, if they have interest in one of our funds. Information is on our website. General information, or if they need to request a private place memorandum and an offering docs and we’ll be happy to send it to them. That’s how they find.
Tom Krol: I love it. You guys. That is Mike Zlotnik, and he is a rockstar and is well known in very elite groups and very well respected and trusted, and I am excited about having a conversation with Mike, with you, after this podcast possibly if we can about about your fund. Anything else that you want to leave our audience with? Or any other pearls of wisdom to leave us with here?
Mike Zlotnik: No, I think we’re good. I appreciate… I agree with your statement Just Read. You were a guest on my podcast. That was your best advice. Read as much as you can, and I’ll say the same. Keep educating yourself. Life is a journey, it’s an educational journey. Just like you, I listen to a lot of books instead of reading them.
Different people have different ways to learn, but life is all about continuous learning, and proving yourself so…
Tom Krol: Easy peasy lemon squeezy. Mike, thank you for being on the show brother. We appreciate that.
Mike Zlotnik: Thank you Tom very much, I appreciate doing it as well.
Tom Krol: Guys, Mike Zlotnik, I can’t believe we had him on the show. He is such a rockstar. I can’t even tell you. There is not an expert I know who doesn’t refer to Mike as the man. So I hope yet really absorbed a lot from this episode. Mike really went into the details, so this is pretty much everything that you need to know to get started and actually get a hard money loan, even if you’re just starting out. So really, really excited and we will see you guys on the next show. Thanks everybody. Talk to you soon. Bye bye.