PLP-108: Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBono

The Private Lender Podcast

Perhaps nothing could be as passive as letting others do the work for you. When it comes to passive investing, the easiest way to get into private lending is to loan your money to a hard money lender and allow them to do their magic. Guest, Jason DeBono from NuView Trust Company, is someone who uses this as his own personal strategy, and he sits down with host, Keith Baker, to share his whys and hows with us. He explains his process from having the money in a self-directed IRA to making contact with the hard money lender or brokers, as well as some of his investment strategies in terms of self-directed IRA and cryptocurrencies. Plus, Jason then provides a couple of great wisdom and advice on working with lenders and borrowers and how to have more skin in the game.

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Listen to the podcast here:

Passive Investing: Private Lending Through Brokers And Hard Money Lenders With Jason DeBono

Our topic is one that I'm ashamed to say I haven't covered in the last hundred episodes or so, but that gets changed. I've often said the easiest way to get into private lending is to loan your money to a hard money lender. Let them do all the work, find the borrowers, vet the deals, look at the numbers, look at the properties, service the loans, make the payments. You're not going to get as much interest or points. You're not going to make as much but then at the same time, this is getting passive because you're not doing as much either. You're letting that hard money lender make the decisions, do those works, vet the deals, and tell the borrower, “No,” or “We'll do the deal, but you’ve got to have more money and more skin in the game.” I interview Jason DeBono from NuView Trust Company and this is exactly his own personal strategy. I'm going to let him discuss it but it's like the truncated version of what I've been spitting out for the last hundred episodes. Without further ado, let's go ahead and get into the interview with Jason DeBono.

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Jason, welcome to the show.

It’s good to be here.

How are you? How's it over in Florida?

As everyone else, we're all adjusting and adapting to the new normal but all is well, thankfully.

I hope you guys are staying safe. How is NuView Trust handling Corona? Are you allowing people and customers into the office? How's that working? Is it all online?

Our business is nationwide. A fair bit of business comes into our office. It's a small amount. Even before the state shutdown, we had already closed our office to visitors. I've been working through getting people working from home. In our business, because of the line of work that we're in, there are too many things. We can't let the whole office go home. There are unfortunately too many things that come into our office like checks, mail, and stuff that has sensitive client information. We want to make sure that we're protecting our clients. We've got a good office building here that we can space out in. We’re taking all the recommended precautions and then a little bit more to try to keep the place spread out.

I love using self-directed IRAs for private lending. I do a lot of it myself. You let someone else do the legwork for you which I want to hear about. Please explain how your process goes from having the money in your self-directed IRA or making contact with that hard money lender, looking at the deal and flowing through the transaction. If you can start with that.

My time is spent overseeing the business and that takes a significant chunk of my time. I don't always have time to go out and pound the pavement and be out in the marketplace to find deals directly. I've done this for many years. I've got about 6 or 8 different groups that are in the lending business that are bright and do what they say they're going to do. I let them source the deals for me. I make it known that, “I've got retirement money. If you've got a deal that you don't have the funds for, but you still want to broker it and make the money off of it, I'm happy to be a lender.” My approach, and I can't speak to everyone that this is the best approach, but I trade interest for points.

Anytime there's a loan that exists out there, either it's been written and they want to sell it and recoup the cash or it hasn’t been written and they want to originate it and they need someone to have the money to do that. I have no problem giving up any of the points upfront for the right to own the loan and own the interest. It keeps me from having to go out and do the legwork. It cost me a few percentage points of potential value upfront. In my IRA, if I can have someone TIMI up loans at 8% to 14% time and time again, I can cherry-pick out the ones I want to do and say no to the ones I don't easily. I find it to be an effective strategy.

[bctt tweet="There's a lot of money that you can sock away. Many people miss opportunities because they don't look for it." username=""]

You're getting between 8% and 14% on your interest rates.

Rarely, I've done under 8%. It's a strong deal, shorter-term and there may be some additional value like an equity kicker at the end or something. I'm a believer in making the deal work. While about 80% of the deals I've done are all through a broker. About 20% of the loans that I've done have been direct. If the deal works better at 5% interest, I don’t want to make 5%, but I don't mind 5% interest if I'm getting 10% of the deal on the backend or some equity kicker participation. There's always a way to structure a deal. At the end of the day, if we can't structure it, we'll move on and find another deal. We're flexible in the way that we participate. I like to keep the risk low and I like to keep the opportunity as steady as possible.

How long are your notes normally when you loan out?

It’s almost always a year. I don't know if this is the right approach but anytime that the loans extend, I do offer an extension and add a clause. Even if it's someone else's loan that I'm purchasing and I keep the points on any extension. If you want to extend for at the same terms. I usually do extensions in 3 to 6 months tranches. I'll do them at 1% for each extension. If you want to extend for three more months, it's 1% and then I get to keep that point.

Your hard money lenders, do you know what their points are? You said you let them have the points because that's how they're going to make their money in the churn of turning the deals through of the points you're going to get the interest. Do you know how they're getting paid or how much percentage-wise?

Typically, 3% to 5% is what I see. As the world gets a little bit more competitive, in 2010, 2011, 2012, we’re here in Florida. We were writing loans at 3 to 5 points and 14% interest regularly because the deals were cheap and the numbers worked. As these deals get more expensive and there's more money out in the marketplace to lend, terms naturally compress a little bit. We're seeing regularly 2 and 10 down the middle of the plate deals. That's what I've seen. There are still some 3 to 4-point deals and 11% to 12% interest deals out there. It depends on the nature of the deal or the background of the investor.

These year-long notes, are these rehab loans or acquisition and seasoning? What type of the use of property are you loaning on?

Almost always rehab properties. Probably 90% fall into that category because they tend to be shorter-term in nature and there tends to be a higher opportunity. I did a loan and I wish I could go back and write about twenty of these. It was in the year 2010. It was a loan that someone kept for five years and they paid 14%. It was unbelievable, but they bought this property at a steal. The rent was through the roof and they figured, "Even at 14%, I might as well keep renting this thing.” They were making a premium even after paying me. I love that deal. The only reason that it ended was the individual that bought it got caught in the market and they had terrible credit. They had to give back some properties. They had to wait this five-year period to finance the property out, where they were willing to give them a loan. They refinance out. They made a ton of money. I made a ton of money over it. I was getting a point every year in between and I was getting 14%. The borrower never missed a payment. It was a unicorn of a deal without a doubt.

You’ve got to love that. You keep getting 14% and pull some points here and there at the same time. I could see why you'd want a ton of those notes sitting into your portfolio.

Especially a tax evading account like an IRA.

[caption id="attachment_2958" align="aligncenter" width="600"] Hard Money Lenders: There's nothing that prevents you from making international investments. Sky's the limit in this self-directed account.[/caption]

Especially with the Corona, COVID and everything, and the $3 trillion that got pumped. It is my mission in life to convert everything over to my Roth IRA. I'm of the mind tax my seeds, not my crop because my crop will be much bigger in the future if I do my due diligence properly in all that stuff. I'm on board with you 100% with that. I am self-employed but I'm doing it through an LLC. I'm going to set up a C corp or an S corp and then pay myself and my kids. If my kids have earned income, what can I do?

Add it to your Roth IRA.

They're up to the same amount. I told my kids, “I'll pay you minimum wage for internet research and do some mailers and stuff. I will match whatever you earn. I'll put it into your IRA because that’s legally what you can do.”

That’s a fantastic plan. I'd even take it a step further to say you could even look at potentially some health savings accounts, Coverdell Education Savings Accounts for those kids or health savings account for the family. There's a lot of money that you can suck away. Many people miss opportunities because they don't look for it. You're doing a fantastic job. You're going to help your kids. Forget about the money they have. You're going to teach them the power of compound growth and that's what keeps the wealthy more wealthy.

Was it Einstein who said that compound interest was the eighth wonder of the world? Leave it alone and watch it grow. That's my strategy. That's what I suggest people do if they can. If they're in a tax situation, to go ahead and start moving everything over little by little into Roth, pay a little now. I've been making my conversions little by little as the deals come through. It's not a huge tax burden. It will take me a little while to switch it all over. Hopefully, I'll get to enjoy that money someday but if not, then it will be passed down to the kids. That’s how the wealthy stay wealthy. That's the whole point. You're doing mostly flips. You're out in Florida. Is that a deed of trust or a mortgage state?

It is a mortgage state.

My understanding with a deed of trust is there are three parties. There's the lender, the borrower, and then there's the trustee that holds title until the contract is complete. There's no third party in Florida with the mortgage state then. It's just the borrower and the lender. Does the lender retain title until the loan is paid off?

No. The title is held by the property owner which would be the borrower, but there's a lien on that title until it's satisfied. Once it's satisfied, satisfaction of mortgage is sent over to the County and then the lien itself is removed from that property.

It's similar then. It's just the terminology and semantics. You are nationwide.

We have clients in all 50 states. We've got international clients that live internationally and clients that even invest internationally. An IRA is a domestic product but there's nothing that prevents you from making international investments. Sky's the limit in the self-directed account.

[bctt tweet="Quality goes out the window when they're free. We care about quality when we pay for them." username=""]

There's something else. I know we didn't speak about this but you allow investments in cryptocurrency.

We do. We're not the facilitator of the crypto investment. We're just the custodian of the entity that owns the crypto. What we do in that manner is customers come to us. They say, “I want to invest in crypto.” We'll work with them to set up an entity and LLC. The IRA will invest into the LLC, then the LLC will participate in whatever crypto platforms, storage, wallet that they choose. They'll keep track of everything. It gives the most flexibility. You're not limited to what our platform offers. Anywhere you can go to open an account, you can go set up a crypto trading platform.

Do you dabble in crypto?

I do not personally dabble. I did own some of the GBTC which is almost like a Bitcoin mutual fund type of investment. It’s publicly traded. I did buy some of that and I was fortunate to buy it at a decent price and run the wave up and then part of the way back but it was good. It's funny if you invited me to Vegas, I'd grab my wallet and you wouldn't have to even finish the sentence. I'd be on the next plane. I enjoy going and gambling, but that's where I keep my gambling. I limit it to that. If I'm there for 48 hours, I'll hit the blackjack table. I'm all about getting rich quick in that environment. Once I leave Vegas, it's not gambling anymore for me.

I'm not trashing Bitcoin or any other crypto by any stretch of the imagination. There may be a place for crypto in the long-term holding sense, but I don't like to play the short game. I know a lot of people have made a ton of money in the stock market. I'm embarrassed when I tell this story but I rarely owned stocks. When I do buy companies that have a good fundamental business. I am the guy that if you look at the COVID related drop and rise, I sold Apple, Amazon and Netflix at the very low of the market. All three are at record highs. They've all significantly blown away where they were even pre-COVID. I don't buy stocks for that reason because I don't know how to tie them up. I don't know how to tie them down.

What I do know is if I buy a loan or I invest in a loan and it's a good quality property, that's got good financial backing, and it's a good quality borrower that has a high likelihood of being successful with the deal. I'm happy to take my 8%, 10%, 12% and sometimes 14%. I leave the gambling stuff to Vegas. Even though looking back in hindsight, I'd love to still own those stocks, knowing what I know. I haven’t had to watch this game. I don't have to wake up with the stress. I'm happy with that stress and with the blackjack table. I don't need that in my everyday life. For me, it's tried and true. Private lending and passive investing are the only way that I put money to work.

I'm in line with you on the whole Vegas thing. A couple of years ago was the last time I went and for the first time in my life, I did not gamble. I walked through both the Luxor and Mandalay Bay Casinos daily and never cashed in anything. I kept walking and that was a big win for me. I'm still riding that win because normally I'm penniless. I'm asking people for money so that I can have a sandwich from friends or whatever.

Vegas will eat you alive. Everything in moderation has its point but good for you. That's a strong sense of willpower.

That's not going to happen the next time I go. I'm going to make up for the lost time. I usually start at the blackjack table, get down and then throw Hail Mary at the craps table and try to get back up. For me, it's an entertainment blowing off stress and drinking what I think is high-quality liquor when they're watering down the well stuff.

Quality goes out the window when they're free. We care about quality when we pay for them. Vegas has it figured out if they don't take your money at the tables, they'll take more else. My philosophy is simple. In 48 hours, there's only so much damage I can do. It satisfies and scratches that itch. For most people they're scratching that itch on the Robinhood app, trying to get rich overnight because they somehow think they understand why Tesla went from being valued at $80 billion to $250 billion overnight. Somehow, they are smart enough to understand it and they're going to get rich as a result. They're all welcome to play that game. I'll take my 48 to 72-hour, lumping every now and then in Vegas and the rest of the year. Tried, true and steady is the best way to go.

[caption id="attachment_2959" align="aligncenter" width="600"] Hard Money Lenders: The eviction and foreclosure process are not about who's right. It's about following a series of bureaucratic red tape to try to get back what is rightfully yours.[/caption]

That's the beauty of private lending. You got a piece of property that if this thing goes tits up, there's a piece of property that you can go get and you're not going to lose everything. My first pillar of private lending is the ROI, Return Of Investment. If I'm giving out $50,000 or $100,000, first point, I want to make sure that's coming back. What's the return on the investment after that? That’s my thing and that's why I like private lending. I also like passive because you are a full-time employee of NuView Trust Company. That's your day job. The last thing you want to do is another day job flipping or running the contractors. You've got a good source of income. You maximize that and passively on the side, you take your self-directed IRA, put it into the private loans, asset-backed lending. Private lending is one of the few investment vehicles that the common man can participate in, which you can get insurance policies to protect the property.

Being here from Houston, I don't know if you've heard about this little storm called Harvey. You guys being in Florida, hanging out there in the water. Hurricanes happen. I always require flood insurance even if it's $400 or $500 a year. I always tell borrowers and flippers, “If $400 is going to break your deal, it's not a deal and I don't want to lend to you anyway.” When Harvey hit, it wasn't a typical storm like you get this massive cyclone coming up in Florida with winds. Harvey for us was tons of rain. Twenty percent of the homes affected had flood insurance. That immediately went into my criteria that day when I heard that on the local news.

On that note, I preach due diligence being that we're in the self-directed account space, especially in private lending, title insurance is required. I have many times that people have said, “I know this deal. Do you care if I don't get title insurance?” I said, “That depends. Do you care if I don't write the loan?” It protects us all: title insurance, hazard