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?”