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Welcome to the Cashflow Guys podcast. It’s that time again, we are here for another episode and hopefully we’re going to learn to earn. For those of you that are tuning in for the first time, my name is Tyler Sheff. I am your host, and today we are going to talk about a topic near and dear to my heart. It’s the topic that allows me to buy cash-flowing real estate with my friends: raising private capital. Now, this is a series, a multi part series that I’m going to do over a couple different episodes. I’m going to wind up this first episode with a conversation with one of my syndication attorneys. He is going to help us unlock the legal questions.
My point here is during the next two episodes, I’m going to give you the foundational information. I want you to come up with some good solid questions, and I want you to email me those questions. Send them over to Info@CashFlowGuys.com, and send those questions in for Cliff. Cliff will go ahead and answer those questions on the third part of this episode. Not only do you get the benefit of learning how to raise private capital, you get the benefit of legal advice that doesn’t cost you one red cent. Now, here’s the advantage: (this is why I love guys like Cliff). Cliff has the availability, the opportunity to do filings, SEC filings in any state, which we’ll cover here in a second. One call does it all with Cliff. We’ll talk about him later when we get to some of the other episodes.
A little bit of housekeeping for you all. First of all, thanks for showing up again. I appreciate you taking the time to come out today and listen to me. This little thing is a slideshow that we did in Coffee With The Cashflow Guys. For those of you that have been here before, you know that I do a show on Friday mornings. It’s called Coffee With The Cashflow Guys. If you’re interested in joining that and asking questions to me live, no matter what they are, regarding real estate investing and real estate in general, you can go to CashFlowGuys.com/Coffee. That will allow you to register for those events. I do send out a reminder email. I get you on my email list then I will remind you when those go out.
I’ve got some vacation time coming up. Jill and I are going to be going to Belize, we’re going to Puerto Rico. I’m not going to be doing it, there’s going to be a few Fridays that I won’t be doing it because I will be goofing off in some strange place. If you’re on my list you will know when we’re not going to be doing it and when we’re doing it, so you don’t reserve your time on Friday morning [9:00] eastern time and be sitting there and talking to yourself. That said, another great way to stay in the loop and to learn to earn is to join our Facebook group. Go to CashFlowGuys.com/Group to learn to earn and get going, taking the steps and, of course, interact with me. You get to ask me questions. I’m in there every day and I’m answering peoples’question. It is my way of giving back.
You bring me the questions, I will make sure that you get the answers. I have my lenders, my legal team, my tax people, they are all members of the group. That is your place; join that group and get your questions answered. Now, before we get going on the private capital I want to talk about mindset. This is important to me and you hear me talk about mindset a lot. It’s mindset that has led to my success and Jill’s success; it’s mindset. It’s having the right mindset. Getting ourselves out of the rat race. Paying off our bad debt and getting ourselves into good debt. When I say bad debt, I don’t mean that we didn’t pay our bills. Of course we pay our bills; we’ve got fantastic credit. By bad debt I mean debt that does not make you money. That’s credit card debt for big screen TV’s and fancy shoes, I like both. Things like that, that’s considered bad debt.
If you’re curious about what I’m talking about, if you want to learn more about that, go read the book Rich Dad Poor Dad. It is a book that literally changed my life, so get out there and read that book. It’s a short read. You can get it, I believe, for free as a PDF now. You can go on YouTube and I think they dictate it to you. You really don’t have an excuse to not read that book. I don’t care if you don’t like to learn how to read. You need to learn how to think differently about money. Change your mindset. That will help you get to where you’re going.
While we’re talking about mindset, I truly believe, and this also comes from Zig Ziglar, you can have everything in life that you want if you will just help enough people get what they want. Nothing could be more true. You can have everything in life that you want if you will just help other people get what they want. Think about that when you are raising capital. This is not a scarcity mentality way to be. You cannot have a scarcity mentality and effectively raise capital. I don’t believe it’s possible, just don’t do it. You have to be thinking number one. Your investor is number one. Nothing else matters besides your investor. Once you get into that frame of mind you will be fine. Get in that frame of mind and then stay in that frame of mind.
Some of the most common mistakes we make when we’re raising capital is, number one, that we’re in a rush. We can’t be in a rush when we’re raising capital, folks. You’ve got to think of this like dating. If you try to run right out and tackle somebody in the parking lot and get them to invest in your deal, that’s not going to work. You can’t call up people and say, “Oh, my god. If you could just hook me up with just a quick $100,000 and that will fix all my problems.” Well, buddy, I don’t really care about your problems. I only care about my problems. My problem is I got $100,000 sitting in the bank, or sitting in my IRA, and I got nothing to do with it. Let’s focus on my problems. If you focus on my problems you might get the $100,000 check to invest in some real estate to make you some cash flow. How about that?
Over-promising, that’s also a really big mistake that people make. Do not promise returns that the asset itself cannot pay. This happens a lot. “Oh, I can give you a 12% return.” Then you find out that the asset only peels off an 8% return. Well, guys, that means you’re upside down 4%. If you’re promising a higher return than what the asset will generate, you are going to have problems. Flippers, are you hearing me? A lot of you rehabbers, you’re not doing your homework. You’re not doing your due diligence. Things don’t go like you planned and then next thing you know, you don’t have enough money to pay off the hard money lender. That’s a problem, guys. That is a big problem.
Now, when I talk about raising capital, let me go ahead and throw that out there, when I talk about raising capital I’m not talking about going to your local hard money lender at the REIA meeting, and getting money at 12 to 18% that you have to pay back in 6 to 12 months. That’s not raising capital, guys. That’s borrowing money, there’s a big difference. Ignorance of the law is another mistake that we make as investors. People think just because they don’t know the law, or they’re not an SEC compliance attorney, that the law is going to give them some kind of a pass. Now, I said this on Coffee With The Cashflow Guys, I’ve said this several times, here’s how it works with the SEC. I’ll break it down real simple for you:
“Hi, we’re the Securities and Exchange Commission. We heard a rumor that you may have violated the law. That being said, we’re going to go ahead and lock you up, throw you in jail. We’re going to seize all of your assets. Yes, including your wife or your husband,” whichever way you look at it. “We’re going to take all your assets and lock you up in jail until you can prove your innocence.”
Let me ask you this question: how are you going to hire an attorney if the SEC has locked up all of your assets? I sure hope you have some good friends.
They are not going to listen to the following excuses: I didn’t know any better, it’s not my fault, my neighbor told me, the guy at the RIA meeting told me, my guru said, the course I paid for said, I read on Facebook, I read on Bigger Pockets. Folks, none of that matters to the Securities and Exchange Commission. Hear me when I say this, play by the rules. Always, always play by the rules when it comes to raising private capital. Regulations I want you to study (this is your homework from this first episode): rule 506. Rule 506 of Regulation D, that’s D like David, of the Securities Act of 1933. Rule 506 of Regulation D of the Securities Act of 1933. I want you to read that.
You’re probably rolling your eyes now. “He’s going to make me read the law?” Yes, I am. Because remember, nobody’s going to care about your excuse that you didn’t know. If I were you I would be familiar with rule 506 of Regulation D. I don’t mean you have to study every word. You don’t have to memorize it, but you do need to learn the difference between right and wrong. Here’s why:
I’ve said it before, nobody cares if you don’t know the rules. You’re not going to get away with an excuse. If you don’t want to be in hot water, I would familiarize yourself with the rules, pretty much common sense.
Also, 17 CFR. 17 CFR. That’s 17 CFR. CFR stands for Code of Regulations. Parts 230, 239, and 242 of the Code of Federal Regulations. You need to familiarize yourself with those. Be intimate with that information. Understand it.
Remember, I’m going to say it again, ignorance of the law does not excuse you from following it, nor does it excuse you from being held responsible for violating it. Understand that. Understand the Jobs Act. It’s also known as the Jumpstart Our Business Startups Act Jobs Act. That is a law that was intended to encourage funding of United States small business by easing various security regulations. That act was enacted into law by the Obama administration. Read that act. Become familiar with it. Understand it.
Here’s another reason why, you’re going to be having some high level conversations with your attorney and with your legal team. It would be nice if you understand what they’re saying because a lot of the time they’re going to speak about Reg. D. 506 C, 506 B, 506 A, 506 D. It would be nice if you understood what they’re talking about. Because you are paying hundreds of dollars an hour to listen to them talk, it would be nice if you understood them. At least it would be beneficial for your wallet. Yes, you have to spend money to make money here. We’re raising capital, it’s going to take some money. This is if you’re doing a syndication.
How to stay out of federal prison is a topic that I love talking about. How you start there, and I tell people this every time I see somebody on Facebook, some bonehead on Facebook, “I’ll give anybody a 12% return if you invest in my deal,” you’re asking for trouble. Don’t do that. Hire a lawyer that specializes in SEC compliance. When I say SEC, I mean Securities Exchange Commission. SEC compliance and syndication. Hire a lawyer that specialized in that. That does not mean your local real estate attorney. That does not mean your local probate attorney. That does not mean your divorce attorney. That does not mean your family lawyer.
While I’m talking about it, don’t hire a lawyer outside of their specialty. Ask a lawyer what their specialty is and stick with it. In other words, don’t hire a probate attorney to do your SEC compliance. Number one, they probably don’t have a clue what you’re doing. Number two, if they take on the case you might be paying them to educate themselves. Isn’t that interesting? Paying somebody $300 an hour, or $400 or $500 an hour, to educate themselves on a topic that they’re then going to educate you on. I think it would be cheaper to go get certified as an attorney.
Folks, do not run ads on Facebook or anywhere else offering a security. Now, throughout this series I hope that you come away from this with the information about what offering a security actually means. Do not run ads on Facebook or anywhere else offering a security. Don’t do it. You’re going to need to become familiar with what a security is and what the definition of a security is. We’re going to talk about that in upcoming episodes.
Build a team and surround yourself with experts. That means, like Rich Dad says, be the dumbest person in the room. Don’t be the smartest guy in the room. Don’t even use the words ‘I know.’ I don’t say that ever anymore because I really don’t know, and I am certainly not the smartest guy in the room. Don’t catch yourself using the words ‘I know,’ because you don’t know. You’re probably gong to be wrong, so just admit it now and be done with it.
Hire a good attorney. Hire a great tax professional. Now, I shouldn’t say good attorney. Hire a great attorney. A great tax professional. Get them involved in your deals, it will be well worth your time and well worth your money. Focus on building relationships and document those relationships. Ladies and gentlemen, if Big Brother comes knock, knock, knocking on your door and they want to know that you have a preexisting relationship with Jimmy the Fish that you just took $100,000 from to go buy a down payment on an apartment building, you darn sure better be able to prove that you had a preexisting relationship with Jimmy The Fish. If you’re asking for an exemption to the securities and exchange laws under one of the many exemptions that are available to you, you better make sure that you have done your due diligence, and that you are compliant in regards to those exemptions. Don’t get yourself in that pickle. Just don’t do it.
I know a lot of you are going, “Tyler, you know, skip over the legalities. I don’t care about all that. I just want to know how to raise capital. I just want to get to how do I get money in the bank account. Will you just shut up about the laws, Tyler, and talk about how to get the money in my bank account?” Well, all right. I’ll appease you for a minute but I’m here to tell you you’re going to hate the answer. Because I’ve said it time and time again on this show. I’m going to say it: here we go. Are you ready for the punch list? Get your pen and paper ready. Remember, you can always hit the 30-second button if you’re on iTunes, or on one of the other pod players, and rewind. This is important, especially my top three reasons, the top three ways you can make this happen.
Number one, build a database today. Okay? Build a database today. A database of attorneys. A database of lenders. A database of IRA administrators. Database of people that have capital to invest. People that have ever considered getting involved in real estate investing. People that have never considered getting involved in real estate investing. Everybody you know belongs in your database. That’s number one.
Number two, is build a database today. Yep, build a database today. That’s number two. Number three, is build a database today. You absolutely have to build a database. Here’s why: Number one, you always are going to need more people to talk to. You are never going to have all the money you need and all the deals you have at the same time. I’ve been doing this for several years now raising capital, and I’m here to tell you when you have capital there will be no deals sometimes. This happens. When you have deals, there will be no capital. I used to get stressed out about that. Then I realized what I’m lacking is a database.
If I need deals, I will go to my database of people that have deals. Call them and say, “Hey, guys. I need something to invest some capital in. I need a good strong cash flowing asset. What do you have for me?
Hey, I’m in the market to buy. What do you have for me? Let’s have a conversation.”
I can do that because I’ve leveraged my database. Here’s another way to use the database. “Oh, Jimmy called me with a screaming deal. Meets my criteria. He’s been listening. He’s on Coffee With the Cashflow Guys. He’s part of the Cashflow Guys community on Facebook. Dude’s killing it. He’s out there knocking on doors. He’s found me a sweet little apartment building. Here’s the problem, the guy wants $500,000 for it. I just happen to be $499,999 short of the $500,000 that I need to pull the trigger on that deal.”
How am I going to get it? I’m going to go back to my database. I’m going to call Mike, and Susan, and Terry, and Jimmy, and Jerry, and Nancy, because I’ve established a relationship with them. I’ve maintained the relationship with them. I’ve reached out to them on a regular basis. I’ve determined that if an opportunity comes up, they may want to hear about it. They didn’t necessarily say they were going to invest in it. They didn’t necessarily even give me a solid commitment, but they did want to be in the loop if opportunities present themself. Guess what? I’m going to put them in the loop. That’s how you do smart business, right?
Number four, don’t waste money buying a list. Please don’t waste money buying a list. Buying lists of cash buyers and lists of investors is a joke. You’re not going to send some guy a postcard and raise one nickel from him. You’re not going to do a Facebook ad and get people to invest in your deals. It’s not that easy. Because when you are advertising, there are very strict guidelines as far as what you can do to advertise. Number one, don’t break the law. Number two, you’re not building relationships when you’re running an ad saying, “Here, please give me money.” How’s that going to work? It’s not going to work, that’s exactly how it’s going to work. It’s going to fail. It’s going to fail miserably.
Save yourself the aggravation, don’t pay those list brokers for a list of garbage. Instead, get out there shaking hands and kissing babies. Get your butt out to Starbucks, have a cup of coffee. Get a lead magnet. The next episode we’re going to talk about lead magnets, ways that you can attract people. Get people interested in what you are doing. That’s important, getting people interested in what you are doing. How do you do that? I was talking to one of my coaching students on the phone today having this very conversation. “Tyler, how do I get people interested in what I’m doing?”
Very simple, brother. You go on Facebook. First of all, you go to your local IRA administrators page website. They probably post some sort of a written blog. In that blog is some great information. The first thing you do is you read it yourself because you need to learn to earn. Once you’ve read that, I would take that link off the top of the website and post it in your Facebook page, on your Facebook profile. Post it right there in your timeline so that you can share that information, that valuable information that you’ve read, number one, to show people what you’re learning. To teach people what you’re learning and to share that information with them.
Here’s the reality of it, folks. You could teach everybody every aspect of what you know about real estate investing. I could do that. Let’s talk about me for example. I could teach you every aspect of real estate investing. Let’s say you have one million dollars cash sitting in your bank account. You are never ever, ever, ever, ever going to loan that money or invest that money in somebody else’s deal because you don’t trust anybody. You hire me to teach you how to invest in real estate and I teach you everything I know. I teach you every single thing that you need to know to build a business identical to mine. There is less than a 1% chance that you will do everything I say, or that you will even try to take any effort to build exactly what I’ve built. Most people are not willing to do the work, that’s a fact.
Real estate investing is a lot of work, guys and girls. Understand that. It’s a lot of work. What you’re going to find is you could teach all you want. Some people may mimic you and that’s fine. They’re going to share your information, but you know what that is? I find that flattering. I got a guy, his name is Vlad. He shares my information all the time and I love that he does that. It’s an honor to me that he finds my information valuable enough to share it. I see my own stuff on Facebook, I think that’s awesome. Please, if you like what you hear in my content, you’re on one of my pages on Facebook, share it. Send it to somebody else. Like it. Tell your friends about it.
If you start posting that information people are going to be interested. They’re going to be intrigued. If you’re out there and let’s say your name is Mike, and I’ll be like, “Hey, Mike. I’m seeing that you’re posting a lot of information lately about IRA’s. What’s up with that?”
“Oh, well, yeah. I’ve been learning how to invest in real estate.”
“Oh, really? Oh, okay. Do you have any good deals?”
“Oh, no. I’m still working on learning that part.”
“Okay. Well, as you get better at it and you learn more, let me know. Keep me in the loop, will you?” Start having conversations like that, very innocent conversations, and you’re going to find out who in your network has had the same thoughts that you have. They may have more fear than you. They may consider doing a deal with you down the road.
One of my mentors, I’ve got several, but one of my mentors J. Massey from Cashflow Diary, he says, “Educate to dominate.” Educate to dominate. “If you educate the marketplace, the marketplace will give back to you.” Jim Rome said that. J. says, “Educate to dominate.” That’s absolutely the case. In my market, everybody knows me as the Cashflow guy. I’m the guy that attracts large amounts of capital. Does that make me rich? No. Because I can’t go out and spend the money on beer and hookers, but I have money to invest usually at any given time. If youbring me an opportunity that makes sense, that fits my criteria, there is a really good chance that I may invest in it. What the structure looks like I don’t know, because I haven’t seen that deal yet.
I’m here to tell you that we just bought a four unit building last week over in Tampa from a guy that was looking to invest. He found an opportunity and we were able to pull the trigger and make that happen. Everybody won. The seller won, he won, we won. We’re all good. Everybody’s happy. A couple tips, ladies and gentlemen, to get you to the yes. Because eventually we’re going to need to get you to the yes, right? You can’t just be out there making mistakes over and over again. Mistakes are good to learn, but eventually they stress you out so let’s get you a couple yes’s. How you get a couple yes’s, you have got to understand your financial friends, I learned that from Larry Harbolt. Larry Harbolt talks about using the term financial friends.
One of my attorneys, Mark Kohler, that helps me out with syndication, sometimes Cliff is another one here in Florida, they don’t like it when I use the term ‘investor.’ Because the word ‘investor’ comes with a very specific meaning in the syndication world, an even more specific meaning when you’re talking about the Securities and Exchange Commission. Larry taught me to use a different word and he calls it ‘financial friends.’ He talks about your financial friends, understand that your financial friends are investing in you. They’re investing in your team. Also, this is more often than not, they’re investing in your ability to solve the problems that may arise. Now, I would be lying if I told you that all my deals went smoothly. Every single time, something comes up that we hadn’t planned. You can’t plan for everything.
We have a lot of investors and we’re always looking for more capital. If you’re looking for somebody that has capital to invest and you’re scared to do it, let’s get on the phone and talk through the process. Maybe we can find a solution for you that makes sense. That may be providing you with an opportunity to invest in. That may be providing you an opportunity to buy for yourself, depending on your comfort level. Let’s at least have that dialog. Go to my website. Reach out to me through my website or schedule an appointment at CashFlowGuys.com/askTyler and let’s get on the phone and talk about it. When problems come up, guys, you have to be the one to have the solution.
People trust the fact that when the you-know-what hits the fan, and let me tell you it has, that I have the solutions. Those solutions are usually not my idea. I hate to say it, but my team is awesome. Awesome. They come up with some amazing solutions and that’s why they’re on my team. When I say my team, that could be one of my property managers. That could be my assistant. Beth, she comes up with some earth shattering ideas that I never would have thought of. Jill. It could have been some of my attorneys, tax professionals. I’ve got some trusted advisors that are syndicators like me. I leverage all of that experience and that’s how I’m able to do what I do.
When you have to think about raising money like dating, now when you’re out dating don’t rush to the alter. You’re going to spook your spouse. If you go out on the first date and say, “Will you marry me, baby?” What’s the answer going to be? “Heck no,” is what the answer is going to be. Now, one of the most common questions I get is, “Tyler, should I raise capital first or should I get a deal first? Which one should I do?” The answer is yes. The answer is always going to be yes.
“Should I raise capital first?”
“Yes, you should.”
“Should I get a deal first?”
“Yes, you should.”
The reason for that is you should be doing both. You should always be looking for the next opportunity, whether that be to raise capital or to find an opportunity to invest upon.
Always, always, always, understand this when you’re out looking for deals. There are no people running around with suitcases of money, unless they’re from Colombia and they’re drug lords. You can go out and look, and have conversations about bigger deals. This is where you’ve got to start thinking bigger. Now, in the single family house market, you’re competing with mom and pop who fell in love with the backyard because the dog can go out there and poop and they won’t step in it. That’s not what I’m talking about, folks. We’re not raising capital by houses; we’re talking about bigger deals. I want you as my audience to someday get to the point to where you’re thinking bigger. If you are thinking bigger already, more power to you.
10X your investing. Just like Grant Cardone says, 10X. Always be raising capital. Always be getting, looking for new deals. Number one most important thing ever, ever, ever: don’t ever, ever, ever, assume anything. Don’t do it. Do not make assumptions. You will usually be wrong. Ask the question, get the answers. I covered this earlier in the episode, don’t ever expect to raise money from a list of investors. Don’t do that. Don’t waste your money. Spend the money that you would spend on a list of potential investors on Amazon in the book section. Matter of fact, spend that money on a Kindle, or the Kindle app. The Kindle app is free, I think. Then fill it with books, or get some audio books. Get an Audible account. Learn. Educate yourself.
Take those steps and always be sure that you fully uncover your financial friends. Why? That is very, very important. You have to understand why the investor is investing. What do they hope to gain? What is the real goal for investing? Ladies and gentlemen, it does not mean a 12% return annually. It goes deeper than that. I need you to dig deeper than that. If you’re not going to do it for yourself, do it for me. Make sure you fully uncover your financial friends.
Ladies and gentleman, that’s going to wrap it up for this week, we’re at the end of the episode. I want to remind you to join our Facebook group CashFlowGuys.com/Group. New website’s going to be coming out soon. We’re going to put a lot of training material on there, a lot of good information for you. I’m excited about that. Larry Harbolt, my dear friend, has launched his new website. If you have not been to Larry’s new website I need you to go to LarryHarbolt.com. Larry Harbolt. B like boy, O like Oscar, L like Larry, T like Tom, look at that I made a funny, dot com. LarryHarbolt.com.
Go over there and take a look at Larry’s information. He’s got all kinds of articles and things like that. I had a big impact on putting that website together. He is a dear friend of mine, and a trusted confident and mentor. He is part of the reason I’ve got to where I’m going, part where I am, and he is definitely going to help me get to where I need to be. He will do the same for you, so head over to LarryHarbolt.com, give him a shout out. Search him on Facebook. You should be following his information. It is Larry that has taught me a lot of what I know, so you want to get it from the horse’s mouth. The Real Deal.
Then you need to listen to The Real Deal podcast, that’s Larry Harbolt’s podcast. Go on iTunes, Stitcher, Sound Cloud, search Larry Harbolt or search The Real Deal podcast and you’ll get his show.
Thank you very much for coming out as we talked. As always, I appreciate you taking the time out of your day to spend it with me. If I can be of assistance to you, don’t hesitate to email us at Info@CashFlowGuys.com. If you want to get on my mailing list, head over to the website at CashFlowGuys.com/Register. Thank you again for coming out and have a fantastic week.
