July 14, 2024 • 49 mins
Discover how to unlock the full potential of your real estate investments with insights from our exceptional guest, Abraham Gray. In this episode of Real Estate Unlocked, Abraham takes us on a transformative journey from his challenging childhood to becoming a multimillionaire investor and entrepreneur. Learn why private money lenders are the secret weapon for successful investors, providing flexible and rapid financing solutions that traditional banks simply can't match. Abraham reveals the advantages of working with PMLs and offers invaluable tips to help you start leveraging these opportunities for your own real estate ventures.
We then take a closer look at the operational nuts and bolts of managing a private money lending fund, spotlighting Alexis Morgan’s successful fund in the Atlanta market. From guaranteeing strong returns for investors to securing profitable, low-risk deals, you’ll gain a comprehensive understanding of how to run a fund efficiently. We stress the importance of building trust, understanding local laws, and having robust legal support to ensure smooth transactions. Whether you’re a seasoned investor or just starting, these insights will help you navigate the complexities of private money lending with confidence.
Finally, we provide essential strategies for beginners, highlighting what to look for in a private money lender and the risks associated with different types of loans. Understand the nuances between lenders who seek guaranteed returns versus those interested in profit-sharing arrangements. Practical advice on networking, securing funding, and ensuring all paperwork is in order will set you up for success. This episode is a treasure trove of practical knowledge that will empower you to make informed decisions and achieve your real estate investment goals
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Joseph Marohn (00:13):
What up everyone and welcome back to the Real
Estate Unlocked podcast.
I'm your host, Joseph Marohn,and today we're going to be
discussing a very importanttopic in real estate highly
requested video DMs going crazy.
Today we're going to bediscussing the topic of private
money lenders.
Private money lenders are notonly crucial to any real estate
(00:34):
investor's business, but may bethe only solution on why a deal
even goes through.
Private money lenders areindividuals who utilize their
own capital for investments suchas real estate and profit off
the interest that's paid on theloans.
Private money lenders are notaffiliated with banks or any
other financial institutions andoftentimes interact directly
(00:56):
with the borrower individually.
They are a valuable asset toinvestors because they often
have different approvalrequirements and a faster pace
than traditional financingprocesses.
While the qualifications andinterest rates will vary based
on the situation, the process ofworking with private money
lenders will be similar to otherloans.
Now you know how we do it onthe Real Estate Unlocked podcast
(01:20):
.
If we're going to do it, we gotto do it right.
We can't just bring on anyprivate money lender.
We need to bring on the privatemoney lender.
Today we have a special guestwho is a multimillionaire
investor, multimillion dollarbusiness owner, very successful
individual, but you would neverknow, because every event you
(01:41):
catch him at he's out wearingflip flops.
Because every event you catchhim at he's out wearing
flip-flops.
Abraham started his firstbusiness when he was just 15
years old and since then hasstarted, bought and sold a few
hundred other businesses.
He also bought his firstproperty at the age of 22, and
(02:02):
since then has bought thousandsof other properties.
He now teaches others how to dothe same.
So, without further ado I'vebeen talking long enough,
everyone if you will, pleaseallow me to formally introduce
to you Abraham Gray.
Abraham, what's up, brother?
Glad you can join us today.
Abraham Gray (02:17):
Yo, what's up?
Good to see you, good to behere and share knowledge and
learn from each other.
Joseph Marohn (02:24):
Absolutely, absolutely Well.
I appreciate you taking thetime out of your busy schedule
to sit down and educate myviewers on such an important
conversation and topic at hand.
Oh for sure, sure, how'severything going with you today?
Abraham Gray (02:36):
Yeah, everything is great.
Yeah, we had a little delay.
I was supposed to be on a fewminutes before now, but we're
good, we're all good now.
Joseph Marohn (02:48):
No, we're all good, brother, we're all good.
So first just tell us a littlebit about you and how you found
success at such a young age man.
I mean most kids are ridingbikes, playing video games or
screwing around chasing girls atthe age of 15, but you were
thinking about money.
Tell us a little bit about thatand how that mindset came about
.
Abraham Gray (03:09):
Yeah, no, I was always thinking about money.
So you know, early on I had likea kind of a rough childhood and
you know I went from likefoster family foster family
boarding school and when Istarted making a little bit of
money when I was 15, I realizedI was able to do more stuff and
have more freedom, and I justalways wanted that.
I always wanted to be able todo whatever I want and not have
to listen to people.
And making money and havingyour own money was the way to do
(03:32):
it.
So I just busted my ass hustleand do whatever I had to do to
make whatever I can, so I didn'thave to rely on other people.
And boom, here I am today.
Joseph Marohn (03:36):
That's great, man , because, like I said, most
people at that age, their mindis somewhere else, but you were
already thinking ahead, andthat's how successful people
have to think, so it's great youhad that mindset early on.
So the purpose behind thispodcast is to educate newly
investors just starting out onthe real estate journey and
might not have all the resourcesavailable to them.
(03:57):
So most of the questions askedtoday are just going to be from
a beginner standpoint and as wecontinue into the interview, the
questions may get a little moredetailed.
So let's start from ground zero.
What exactly is a PML or aprivate money lender, and why
would someone prefer going thatroute instead of just going to
the bank and getting traditionalfinancing?
Abraham Gray (04:16):
Yeah, so a lot of it really is what you said
earlier.
Basically, when you go to thebank, banks won't loan on a lot
of things.
But even if they will loan onit, there's a million paperwork
you have to do and all kinds offees and it just takes a lot of
time.
A PML you can borrow money andget the money that day.
Pmls have all different types ofthings they'll loan on that
(04:37):
banks won't, and they're justeasier and faster to deal with.
So most people would rather gowith a PML, especially if it's a
short-term loan or something,because they might need the
money right away and goingthrough a bank we can't get it
that fast.
Plus, some PMLs will give youmuch better terms, much better
interest rates, but, more thananything else, they just don't
(04:59):
have all the paperwork you haveto fill out, which is work that
a lot of people even fail to dobefore I have to fill out, which
is worth it for a lot of people.
Even if you fail a little more.
I have to do all that paperworkand get the money faster.
Joseph Marohn (05:06):
Right.
So there's definitely someadvantages there.
So you said, you can get itinstantly.
When you say instantly, howfast are we talking?
Abraham Gray (05:13):
I mean the right PMO will give it to you the
second you ask them They'll belike oh, you need that, there
you go.
I mean, usually it'll take atleast a day to a week, but I've
done tons of PMLs where I givepeople money the next day.
It's not super uncommon.
If I'm doing it for a property,I'll need the title to be run
(05:37):
to make sure that there's noother liens.
I'll need to get security deedsor keep a trust and promissory
notes and lender's titlepolicies, all these other things
.
But you can do all that withone day.
Joseph Marohn (05:49):
Right, right, absolutely.
So I can definitely see theadvantages there.
So you know, you and I, abraham, we're a part of an awesome
community called Sub2, right, wehave access to a ton of
resources and connections, butlet's say, I'm not a part of sub
two.
How would one even find aprivate money lender, and where
would I begin to look?
Abraham Gray (06:08):
So obviously the most common thing that people do
when they try to find a PML isto go to their family and
friends and people that theyknow really well, because PMLs
are really mostly based onhaving that good rapport with
you, like, if you don't trustsomebody, you're not going to
loan them money.
Joseph Marohn (06:24):
Who's going to trust you most?
Abraham Gray (06:25):
Your family and your friends.
That would be the first placeto start.
The next place, I would say, ison social media.
I get tons of deals, whetherit's PML or other types of deals
on social media.
I post so much stuff.
I let people know what I'mdoing.
I let people know what I'msuccessful in.
What I'm successful in, youknow a lot of people will
respond to me do you ever needhelp with something?
(06:45):
Can I ever, you know, be partof your deal?
Can I partner with you?
Can I whatever PML with you?
You know something like that.
So the reason why I get thosepeople that do that is because I
post so much stuff and peoplesee that I'm on social media.
All the different things thatyou do will get you a lot more
business, will get you a lotmore PML, if that's what you're
(07:05):
looking for.
Of course, going to differentevents, going to local meetups,
going to masterminds, going tonetworking events are super
crucial because if you talk andyou find tons of people in there
, some people need money, somepeople have extra money, every
time I go to an event andsomebody asks all right, who in
this room has money to lend, whoin this money needs money.
(07:26):
There's literally tons ofpeople raising their hand for
both topics, and the amount ofmoney these people have to lend
are astronomical.
Now, everybody has a differentcriteria.
Some want to lend on land, somewant to lend on single family,
some want to lend on multifamily.
Whatever it is, you find theright one for you and you're
good.
Joseph Marohn (07:46):
See, I think that's the beauty of private
money lending, because itdoesn't necessarily have to be
someone in real estate, right,it could be any type of person
with some money that just wantsa great return, or maybe, you
know, like you said, a familymember.
So very good advice right there.
So let me ask you so, if I'venever done a deal before, will a
private money lender even workwith me?
(08:06):
And if they do, what might theyask of me?
Abraham Gray (08:09):
Yeah, so that's the great thing about private
money lenders you find the rightone.
They'll deal with you.
A lot of private money lendershave a lend box, let's say,
where they'll only lend peoplethat have done deals before or
people that they know thatthey've done deals with, but
some deals before, or peoplethat they know that deals with,
but some people will lend toanyone.
So it's just like you know.
If you're in real estate andyou're trying to buy a deal, are
you going to buy the first dealthat you're trying to buy?
Are you going to buy the secondor third?
(08:31):
You might need to go through 20, 50, 100 deals to get a deal,
or two deals.
Joseph Marohn (08:36):
It's the same thing with lenders.
Abraham Gray (08:36):
You got to find a ton of different lenders and
there that will lend to peoplethat have never done a deal
before.
Joseph Marohn (08:44):
Okay, so let's say I do find the one that fits
me.
What kind of questions should Ibe asking them?
Abraham Gray (08:50):
The only really thing that I would ask a private
money lender is are you loaningmoney and if so, what are you
loaning money on and what areyour terms requirements?
And basically that's it.
After that, you just let themask you all the different things
that they need from you to feelcomfortable with you.
Joseph Marohn (09:07):
Let them do their due diligence.
Ok, great, great.
So what's the differencebetween a private money lender,
a hard money lender and, let'ssay, a gator lender?
Yeah, so a private money lenderis just a regular person, that
is not in the business at allwhatsoever and we'll just loan
money because they want to get abetter return on what they can
get on their money earned.
Abraham Gray (09:30):
A hard money lender is an institution, a bank
, some sort of bank.
It doesn't have to be a bank,but someone that has a company.
That that's what they do andthey have a set criteria and
they need a lot of paperwork andit's more sort of like a bank,
right, so you do it at the bank,or a regular person.
And then a Gator lender issomeone that is trying to lend
(09:52):
money, but only for very, veryshort periods of time, like
sometimes a day, sometimes up toa month, but not much longer,
and they're looking for biggerreturns but for a shorter amount
of time.
So most Gator lenders arelending on EMV loans and those
are usually typically three tofour weeks or double closes,
(10:12):
which are basically the same dayor next day, Great.
Joseph Marohn (10:16):
So are you doing both personally or are you more
on the private money lendingside?
Abraham Gray (10:20):
I do a lot of both .
I actually prefer the GatorLender stuff because it's a
bigger return and a fasterreturn.
So I do probably more GatorLending than anything else,
although I do a ton of privatemoney lending too.
But the problem with privatemoney lending is no matter how
much money you have, you'regoing to run out of money at
(10:41):
some point.
So I keep like $10 million ofmy own money that I lend out to
people for private money.
Joseph Marohn (10:46):
But it's literally like most of the time
that $10 million is out.
Abraham Gray (10:50):
So I'm only lending on new deals as I get
paid on some of the deals that Ialready have out.
I mean, if I had $100 millionI'd still run out of money
because then there would be morepeople.
But with transactional, withGator lending, it's really hard
to run out of money because youget the money turned so fast.
So I really like that model.
Joseph Marohn (11:10):
I just want to clarify real quick.
Back that up.
You said $10 million, rightyeah, that's awesome man.
You're the right private moneylender to have on their books,
right yeah, I know.
Abraham Gray (11:22):
So my lend boxes, I only lend in first position
and I only led for deals inGeorgia, 95 plus percent in the
Atlanta market.
But I only live in Georgia, soI never lend money outside of
Georgia, but yeah, in Georgia Ihave, but I literally have way
more people that want to borrowmoney than you know we're store.
I'm actually starting a fundthis month where I'll have
(11:47):
probably 50% or double theamount of money to lend out but
it'll go fast because everybodywants to borrow money.
Joseph Marohn (11:54):
What kind of fund are you doing?
Abraham Gray (11:57):
So if you know Alexis Morgan, she actually is
the one that started the fundand basically she's running it
and doing all the paperwork andI'm basically in charge of just
putting the money out and makingsure everyone gets their
interest every single month andstuff like that.
But it's just a fund for peopleto put money in that you know,
we guarantee them 12% return orhigher, based on you know
(12:19):
different things, but minimum12% and they get paid every
month or every quarter of theirinterest.
And then it keeps going.
But all of that money is usedto do PML on single family homes
in first position in theAtlanta market.
So I buy hundreds of homes ayear in the Atlanta market.
(12:41):
So I know how to comp.
I know what stuff's worth.
I make a lot of money on them,but I very rarely do a bad deal.
Joseph Marohn (12:48):
I know if somebody else is getting a good
deal.
Abraham Gray (12:50):
If someone's buying a good deal, I'll loan
them the money At the worst casescenario if they don't pay, I
only loan them enough to where Iknow that I would buy it for
more than what I loaned them.
I would just foreclose propertyover or whatever.
But I never have to do thatbecause everyone on the money
team knows that they have a lotof equity in it.
So we'll never let them.
You know not, they'll never notpay you.
(13:11):
It makes no sense because theywould lose a lot of equity.
Joseph Marohn (13:15):
Right right Now.
That's a smart idea, man,putting that together.
So what kind of actionablesteps can be taken to build a
like, a genuine connection or atrust with this person?
Abraham Gray (13:34):
And as far as a business relationship as it
grows and we're doing more dealstogether, is it possible to get
more favorable terms?
Yeah, I mean depending on theprivate money lender.
I have a minimum amount that Icharge, but I do charge more
than that sometimes, dependingon if the deal I don't like as
much.
So you just have to find theright private money lender that
will charge less.
There's private money lendersthat will charge a lot less than
others and there's some thatneed a lot more.
Usually the ones that are veryexperienced and can do a lot of
(13:59):
deals will charge more becausethey have plenty of people
asking them for money and theycan get it.
But someone that's newer, anewer private money lender would
probably give you a better deal, because they just want to get
their money out there and theymight not know how much people
to loan to.
Joseph Marohn (14:10):
So if you're trying to get the best deal.
Abraham Gray (14:12):
Yet find someone that doesn't have a lot of
people always asking for moneyand someone that isn't making
hardly any money on their money.
Whatever you offer them, it's alot more and they feel good
about it.
Joseph Marohn (14:22):
Right, right, and then and they feel good about
it Right, right.
And so could you walk beginnersthrough the typical process of
applying for a private moneyloan, from the initial inquiry
to the actual funding, or isthere any applying process at
all?
Abraham Gray (14:34):
Yes, the process for me goes like this People ask
me can I borrow money?
Are you lending money?
And I'll be like, let's say Ihave extra money to lend.
At the time I'll be like, yes,I'm lending my boxes.
It has to be in first position.
I charge an amount of 18%interest, which is 1.5% a month.
(14:57):
It has to be in Georgia,preferably in the Atlanta market
, but definitely Georgia.
Then I'll say send me yourproperty that you want to borrow
money on.
How much do you need to borrow?
What's your entry strategy?
And then I'll look at it to seeif I think it's a good deal or
not.
And then I'll be connected to aclosing attorney here in
(15:18):
Georgia and I'll lead them toget me the four things I need on
every deal which is thesecurity deed, a promissory note
, a lender's title policy andthen, of course, insurance on
the property.
So once I have those four things, the title's run, everything
else.
I know my first position.
Then the closing attorneyfinalizes all the stuff.
I give them all the informationon the loan, what all the terms
(15:40):
are that gets put into thepromissory note, and then of
course, the amount that's aboutthe security fee that gets filed
in the county.
I will first lean on thatproperty and then, once the fix
and flip, is over, like 90-somepercent of my loans are for fix
and flips.
Once it sells, I get paid back.
Joseph Marohn (15:58):
Great, great man.
Is there a particular reasonwhy you only go to Linden
Georgia?
Is that so you can just huntthem down if they're not paying
you, or what?
Abraham Gray (16:07):
Well, there's a lot of reasons.
That's actually a good question.
So, first off, I know all thelaws in Georgia.
So when I say all the laws, Iknow how much you can charge.
I know the process to forecloseif someone doesn't pay me,
which is really important.
Joseph Marohn (16:20):
A lot of people with loan money in LA states.
Abraham Gray (16:22):
They don't even know what the foreclosure
process is if someone doesn'tpay.
So I know I actually haveforeclosure attorneys on hand
that are ready to foreclose.
Now I've done thousands of PMLs.
I've only had to use aforeclosure attorney three times
and out of those three timestwo people ended up just giving
me a deed of loot back.
So I ended up giving me thehouse back and I worked to deal
with them.
The third person the day beforethe auction actually found
(16:44):
somebody else to pay me back.
So I never even have toforeclose.
But it's because I'm very safewith how much I lend people.
I lend people an amount thatthey'd be an idiot to lend me
foreclosed because they'regiving up so much equity.
But that's pretty much theprocess.
But with Georgia also, I knowthat it takes me two months to
foreclose on somebody.
If but with Georgia also I knowthat it takes me two months to
(17:05):
foreclose on somebody.
If somebody doesn't pay mewithin two months, I can get
that property sold and get mymoney back.
A lot of states it could be sixmonths a year or even longer.
So I know the Republican statesoverall are way more easier to
foreclose and get your moneyback sooner.
But I know some Democrat statesit could take a year or two
(17:26):
years to foreclose and get yourmoney back.
You just got to know are youcomfortable being in a state
that can take you that long ordo you not want to?
I would make sure that you knowthe state, know the laws, have
a foreclosure attorney on handthat you don't have to figure it
out if you come to that.
Also, again, I learned in firstposition if you start loaning in
second position, you, if youstart loaning in second position
, you are going to have a lot ofproblems.
So I used to loan in first andsecond position, a little bit in
(17:46):
second position and I've donethousands of deals in first
position.
I've had three where I actuallyhad a problem, but I actually
didn't have a problem at the endbecause I was able to get my
money back or worked it outbefore the foreclosure.
I've done 50 deals total in mylife or less that were in second
position.
(18:06):
I've probably had problems with15 to 10 to 15 of them, so 20
to 30% and that's a big problem.
A couple I never got money backbecause of a bunch of different
reasons, but it's because youknow second position is a lot
tougher for a lot of that stuff.
The whole other conversationcan be a long time, but I really
don't want to be in the secondposition anymore.
It's very rare, like once in ablue moon.
I know the person really welland it's super secure and
(18:29):
whatever, but it's still it'svery risky.
Joseph Marohn (18:33):
No, it makes sense.
I mean, you're in Georgia, it'syour own backyard and you know
the laws well, so you know, asyou just said, other states have
their own laws and whatnot, soit makes perfect sense, okay,
other states have their own lawsand whatnot, so it makes
perfect sense, okay.
So I'm brand new to real estate.
I managed to get a deal on acontract.
I want to be no money out ofpocket.
Could you explain some commonterms and conditions that
(18:53):
lenders might offer to newlyinvestors and how do the
interest rates and feestypically work?
Abraham Gray (18:59):
Yeah, so I mean, what I see is most people do
interest only for a PML untilit's paid off.
Uh, usually somewhere between asix month, 12 month pooling.
I would do six months but Ialways extended it.
People are paying Right.
Um, I usually see interestrates anywhere from uh three
(19:19):
quarters of a percent a monthfor people that just are brand
new, that don't know whatthey're doing, to two or three
percent a month in interest.
I charge one and a half percentright in the middle, but those
are the rates that I see.
Obviously, if you know theperson well or if it's someone
that's newer, doesn't have waysto put the money out, they're
going to give you a better dealand better terms.
If you haven't done it much, Idon't even know how to protect
(19:40):
yourselves very well.
Their terms they haven't donemuch and I don't even know how
to protect themselves very well.
But that's pretty much what Isee.
Joseph Marohn (19:46):
I see that people that know what they're doing
never really get screwed and arepretty much safe.
Abraham Gray (19:51):
But newer people that are getting into it.
I see a lot of people losemoney.
I see a lot of people thatdon't know what they're doing
and loan too much money on adeal or money in the wrong state
or money maybe not in firstposition and they don't
understand the risks or theydon't have the right paperwork
or something, and I see a lot ofpeople lose money If they talk
to me first, they talk tosomeone that doesn't do it first
(20:12):
.
They can avoid all these issuesbecause there's plenty of ways
to do it safely and make a lotof money.
Joseph Marohn (20:16):
Right, and that's great points you brought up,
and that's actually the mainpurpose of this interview.
I want to get more knowledgeout there to people so they're
making sure they're protected,right?
So would a private money lenderfund 100% of my deal?
Abraham Gray (20:32):
Yeah, so again, every private money lender is
different.
I will fund 100% of somebody'sdeal if they are buying cheap
enough, let's say the home'sworth $100,000.
I might loan.
Let's say let's make the number.
Let's say I loan up to $70,000because that's what I feel
comfortable on that home.
So if they're buying the homefor $80,000, I'll loan $70,000.
They have to come up with theother 10.
(20:52):
If they're buying it for$60,000, I'll loan them the
whole amount.
Joseph Marohn (20:56):
Okay, that makes sense.
And then, what kind ofnegotiation strategies can
beginners employ to securefavorable terms?
Abraham Gray (21:05):
So if you're trying to borrow money again,
it's just figuring out who theright private money lender is
for you.
If you're going to borrow moneyfrom me, I'm never going to go
less than 18%.
It's never going to happen.
I would borrow money for lessthan 18% just because I know I
could lend it for 18% or more.
So if you're trying to borrow,money for under that, then
you've got to find someone thatis willing to do it.
(21:26):
If you are trying to findsomeone that's willing to loan
you money for a longer period oftime, maybe for a few years, if
you're trying to do a buy, andhold then you've got to find a
different type of money lender.
If you're trying to find someonewho wants to loan you money in
(21:47):
a second position, you have tofind that type of money.
So it's just a matter offinding the right one.
There's not really, there'sreally a private money lender
out there just for any type ofsituation, as long as you know,
they feel that they're going tomake money, and they can do
better with lending the moneythan what their money is doing
without it.
Joseph Marohn (21:59):
Right.
Right, and it's kind of likeyou know we kind of already
talked about, you know the timeframe.
It varies, right.
You know some people will giveit right away, some might take a
little longer.
But how is the money receivedLike?
Should I be sending a check, adirect deposit, wire transfer?
Abraham Gray (22:15):
The actual lender.
Joseph Marohn (22:16):
Yeah, the actual lender.
Abraham Gray (22:18):
Yeah, so the lender, I mean in theory.
99% of the time the moneyshould go through the title or a
closing attorney.
Joseph Marohn (22:27):
Right.
Abraham Gray (22:28):
The exceptions would be this is for the lender
sending you the money.
The exceptions would be iftitle or the closing attorney,
the reason why you send thetitle or closing attorney first.
This is the reason why first.
This is the reason why it'sbecause they're going to make
sure that they have all thecorrect documents, the
promissory notes the deed oftrust, the title insurance,
(22:48):
whatever they need.
They're going to make sure it'sall filed and all done
correctly before they give theperson that's borrowing the
money the money.
So that's, why you go throughtitle, so that way you have all
the documentation.
If you need it for clothes,it's all there.
So that's why you have to fillit.
However, if you were to haveTidal fill all that stuff out
with the buyer and then Tidalemails you or tells you look,
(23:12):
they signed everything, I'mready to file it, you can send
the money directly to them, thenyou could.
Then you could send it directlyto them.
That happens less than 1% ofthe time.
Usually it's a lot safer to gothrough title because you know
that title is not allowed tosend the money until all that's
done.
But if title technically tellsyou that all the paperwork is
(23:33):
done and everything's filed, intheory you could wire the person
directly because you'reprotected, because everything's
filed.
But you got to make sure.
But that's super rare.
I would say 99 plus percent ofthe time it goes through title
and that's really the reason why.
So you're protected, so theperson can't get the money and
then all of a sudden they don'tpay you and you try to foreclose
and then the stuff wasn't filed.
(23:53):
The stuff wasn't filled outright, that's the direction.
Joseph Marohn (23:57):
Absolutely.
If I'm going to be lendingmoney, I'm going to be sending
it to the title company just tomake sure that nothing can
happen.
They can just run off with yourmoney.
So what kind of due diligenceshould one undertake before
entering into an agreement witha private money lender?
And there's a ton of scamartists out here asking for
routing numbers, asking foraccount numbers.
(24:18):
How are both sides protected?
Abraham Gray (24:20):
So if you're the borrower, I would never send a
private money lender any fees upfront.
I have never asked anyone forfees, ever when I'm doing a
private money loan.
I basically will wire the moneyto title and if there are any
fees I charge, it's going tocome out of the money I wire.
(24:41):
So if I have to wire someone$100,000 and I'm charging $2,000
of fees up front, well, I'mjust going to wire $98,000.
I'm not going to make them pay$2,000 and after I get $2,000,
I'll wire $100,000.
Joseph Marohn (24:53):
Right.
Abraham Gray (24:54):
So everyone that is scamming like every lender
that's a scam lender will belike oh, you have to get me
money up front.
So anytime you have to getmoney up front.
Joseph Marohn (25:02):
That is a big red flag.
Abraham Gray (25:03):
There are some times where you know hard money
lenders and different peoplelike that will ask for money up
front it should be very minimalamounts.
It's usually for an appraisalor something like that that they
don't want to pay out of theirown money.
But you just have to be carefulthat that's not a scam person,
you know if someone asks you formoney up front.
You've got to really vet themand find out all the different
people you're blowing money to,and hopefully you should know
(25:24):
some of them to verify thatthat's not a scam.
But sending money up front is abig scam For a lender sending
money outside of title sendingmoney directly to the person
you're blowing money to is a bigred flag for a scam as well.
Like I said, there is that oneexception where you can do it,
but it's super rare that a titlecompany is going to say, okay,
I'll do all the paperwork andyou can just wire them directly
(25:46):
afterwards.
That's super rare I see thathappen once in the blue moon,
but it's usually when you knowthe person really well and you
know the title company reallywell and everybody knows each
other really well.
But if everyone doesn't knoweach other really well and you
haven't done multiple deals andknown each other for a long time
, that should really neverhappen.
Joseph Marohn (26:03):
That's some great info.
Thank you for providing that.
What are some effectivestrategies someone can use to
ensure they can comfortablyrepay the private money loan
with the agreed upon terms?
Abraham Gray (26:15):
Yeah, so basically , the person that's lending the
money should underwrite the dealand understand that, look,
there's profit in this deal.
Look, I am charging this person$2,000 a month.
They're probably going to needsix months, so that's $12,000.
They're paying $100,000 for theproperty.
They're spending $25,000 onrehab.
So $100,000 plus $25,000 plus$12,000, that's $137,000.
(26:36):
This property should sell for$190,000.
So there's 30,000, 40,000profit after my private money.
Now, if you underwrite it andyou're like, wait a second,
after all these fees, there's noprofit.
You might have a problemgetting your money back.
You shouldn't have loaned themthat much money.
Joseph Marohn (26:52):
So it's basically all underwriting and making
sure.
Abraham Gray (26:55):
So obviously most private money lenders want to
make as much money as possibleon their loans.
There's a fine line Like youwant to get people a good deal,
you want to get a good deal, butyou also have to get people a
good deal.
So if you're charging way toomuch, you might put them in a
position where they can't payyou.
So you've got to make sure thatthere's room for them to make
money as well.
If you don't make money, you'realso a bad deal, because
(27:17):
everyone has to make money.
Joseph Marohn (27:18):
Right.
Abraham Gray (27:29):
Right.
And so then, what would happenif the loan didn't get paid back
on the agreed terms?
What happens next?
I wasn't in agreement and I'mgoing to be a lot more strict
with that person going to do italone in the future.
But if I see that they'retalking to me or they're trying
to work something out, then I'llwork with them.
If they go radio silent and youcan't get a hold of them, I
(27:52):
just assume that they're dead.
I assume they're dead and ifthey're dead, the only way to
get your money is to foreclose.
So if they don't respond to meor they can't, work, any deal
that's acceptable to you or me.
whoever's willing to money, thenyou foreclose.
It's really easy to foreclosein Georgia and that's why I live
here.
Joseph Marohn (28:12):
Yeah, I'm so glad you brought that up because so,
since we're on the subject ofboth sides being protected,
let's talk about communicationand transparency for a second.
You know, I'm sure you've seenquite a few lenders in the
community been getting burnedand it's just an unfortunate
situation and I don't think it'sthe borrower purposely just
trying to burn that person.
(28:32):
I think it's more of acommunication and a lack of just
being transparent with thatlender, right?
So how important iscommunication and transparency
between the borrower and theprivate money lender, and what
expectations should beginnersset?
Abraham Gray (28:47):
It's crucial Any single time your lender calls
you or emails you, you've got torespond or answer the call.
If not, they think you'reavoiding them.
Joseph Marohn (28:55):
So communication is crucial, but the reason why
most people that we know thatare losing money.
Abraham Gray (29:00):
Are losing money, they're very new.
Joseph Marohn (29:01):
They don't know what they're doing.
They're making a lot ofmistakes.
Abraham Gray (29:03):
They're not doing any of the things I just told
you you need to do.
If they do everything I'mtelling you what to do, which is
making sure you have all thepaperwork done right, do a few
title, making sure that you compthe property right and you're
only loaning enough to where youknow that they can pay you back
because they're getting a good.
You can't loan money to somebodythat paid too much for a
property.
You can only loan money topeople that got a really good
(29:25):
deal on the property.
So if you're just to loan moneyto people and you're not seeing
if they got a really good dealon the property, that's just
like buying a property for morethan it's worth.
You're going to lose moneyprobably Right.
Joseph Marohn (29:36):
And so then, when they're asking you all these
questions, they're asking it fora reason, right, because
they're trying to do their owndue diligence and underwrite the
property properly.
So we established that not allprivate money lenders are the
same.
Each has their own terms andconditions and how they choose
to work with you.
What are some key qualities orcriteria that new investors
should look for when selecting aPML to work with?
Abraham Gray (30:00):
just someone that will do what they need, someone
that their lend boxes in whatthey're trying to borrow, but
then you know, obviously tryingto find the best terms that they
can get whether it's the bestinterest rate, the most amount
of money, the longer the balloon.
So all those things areimportant for someone looking
for a lender, but obviouslysomeone that's looking for a
(30:22):
lender is going to search for asmany as many people as they can
and then pick the best one thatmatches up.
Joseph Marohn (30:29):
Right, and then you talked a little bit about
first position and foreclosing,but how is collateral typically
handled and what types of assetsare commonly used as security
for loans?
Would lenders be okay withtaking second or third position,
or is it first position alwaysa requirement?
Abraham Gray (30:46):
For me, first position is pretty much always a
requirement, just because thesecond position can be a real
hassle if they don't pay you.
I can give you a quick exampleof a few reasons why.
But I mean, there are plenty ofpeople in second position.
Most of them don't reallyunderstand the risks and a lot
of people are newer that do it.
(31:06):
Now would I loan in secondposition?
If it's someone that I knowsuper well, would I loan case
money in second position.
I'd loan it then in fifthposition it doesn't matter
because I know he's going to payme.
But would I loan money insecond position to someone that
I don't know really well or havedone tons of deals with and
know that they've done plenty ofother loans and it paid off?
Joseph Marohn (31:26):
Hell no.
Abraham Gray (31:26):
I never would.
So in second position.
This is the reason why you'rein really bad shape in second
position.
I'll give you one quick one,although there's a lot but I
don't have time to go throughthem all.
But just to put it inperspective let's just say a
home is worth $100,000.
Let's just say you'recomfortable lending 70%.
So let's say you're comfortablein $70,000 on this $100,000
(31:46):
home.
Okay, cool.
In first position.
Let's just say now the personalready has a loan on the
property for $50,000.
They need 20,000 more.
So they're coming to you andthey're like look, you can get a
second position, but look, Iknow you're only getting that
70,000 on it.
Guess what I only owe $50,000first, I just need $20,000 more.
It still falls within that$70,000, so you're still safe,
(32:08):
right?
Yeah, of course you thinkyou're safe.
You're not, but you think youare.
So that's the problem mostpeople have.
I'm going to explain to you whyyou're not000.
So they're still $30,000 worthof equity in their minds.
So that's the biggest problem.
What people don't realize is ifsomebody isn't paying you on
(32:31):
your second position loan, that$20,000 loan, if they're not
paying you on that loan, whoelse do you think they're not
paying?
Joseph Marohn (32:39):
Good point.
Abraham Gray (32:40):
They're not paying the first position probably,
either Most of the time they'renot paying the second position.
They're not paying the firstposition probably, either most
of the time they're not payingthe second position.
They're not paying the firstposition almost most of the time
.
So so what happens in thissituation?
Well, this is what happens.
Who knows how long that firstposition person is going to let?
that person slide without payingthem.
Some people might startforeclosure process in a month
(33:01):
or two.
Some people might let it go forsix, nine months because
they're busy or don't know whatthey're doing or whatever.
They're trying to work with theperson.
But let's just say it goes onfor five or six months.
Now, on top of that $50,000that's owed to that first
position, there's five or sixmonths worth of interest, five
or six months worth of latepayments and actually at this
(33:25):
point now they're going to hirean attorney, which that's going
to be added to the $50,000.
Then they're going to hire aforeclosure attorney that's
going to foreclose on that andthat's going to be another
$5,000.
Joseph Marohn (33:31):
Then you're going to have late fees and all these
other things.
Abraham Gray (33:33):
Before you know it , that $50,000 that's behind in
payments and interest.
Now, instead of owing $50,000,you owe the first position
$65,000.
So when the second position hasto close and they're owing
(33:54):
$20,000, and this home figure isgoing to go for $70,000, which
it might, the $70,000 might gofor foreclosure but guess what?
$65,000 is going to go to thefirst position.
You're going to get $5,000.
Might go for foreclosure, butguess what?
$65,000 is going to go to thefirst position?
You're going to get five that'sleft.
In the second position, you'regoing to lose $15,000.
Joseph Marohn (34:11):
That makes sense.
That's a great point that youbrought up there.
Questions even my partner Ashand I ran into early on were if
we have our own capital to fundour own deals, is it wise to
even utilize a private moneylender?
Why borrow money I now need topay interest on when I already
have the capital to do so?
What's your advice on that?
Abraham Gray (34:31):
So I would never borrow a ton of money, if I have
money, with the exception ofyou always want to have a
cushion, some extra money incase something bad happens.
So figure out the cushion thatyou need and keep that cushion,
but borrow the rest.
So let's say I have $100,000 inmy bank and I need $100,000 to
(34:51):
buy this deal, but you wannahave a 30, $40,000 cushion in
case some crazy shit happens.
Borrow 60,000, keep the 40,000there so you have a peace of
mind and less stress.
So if something happens, youhave that extra money or borrow
the money, borrow the whole$100,000, even if you have the
$100,000.
The reason why you borrow thewhole $100,000 is because maybe
(35:12):
you're going to find anotherreally good deal in the next few
months and you don't want tohave to find a private money
lender then because you have oneright now.
So you have that extra $100,000for the next really good deal
and you might lose that reallygood deal if you didn't have any
money to come up with it, ifyou couldn't find a private
money lender at that time.
So a lot of people keep thatmoney because there's an
opportunity cost that if youdon't have it you might lose
(35:33):
money.
So those are the two reasonswhy I would use a private money
lender, even if I had my ownmoney.
But typically I would onlyborrow the amount needed to
where I still have that cushionor where I know I might have
enough money to buy another typeof deal that I might have
before this other deal is done.
Joseph Marohn (35:51):
Oh, that's a great point with the cushion,
because you know, all the timewe see, you know Pace is
teaching us like never use yourown capital, you know, always
use private money lenders.
Abraham Gray (36:00):
You know, and it's like every time we come up with
a deal, the reason why Pacesays that and it's really smart
is because of the way Pace doesdeals.
Most people don't do deals theway Pace does deals.
If you want to be like Pace andyou want to do deals like Pace,
you should borrow money forevery deal.
Why?
Because Pace does deal afterdeal after deal after deal, no
(36:22):
matter how much money Pace hasor anyone has, you're going to
run out of money, but Pace knowsthat he wants to keep doing
deals, so he'll keep getting newprivate money lenders even
though he has money, because atsome point he might need to use
his money for stuff on dealsthat he can't get a private
money lender for.
So as long as you keep gettingprivate money, and as long as
you underwrite it where you'regoing to make money with private
money lenders.
he also looks at it like this Ican do 10 deals with private
(36:44):
money lenders and maybe make10,000 deals instead of 20,000
deals, but I'm doing 10 dealsand make 100,000 bucks.
But I'd rather do 10 deals andmake 100,000, or two deals and
make 40,000.
So that's the way Case looks atit and for him it totally makes
sense.
But it doesn't make sense foreverybody.
How many deals can you handle?
So some people can do it andthen it makes sense for them,
but if you only do one or twodeals it might not make sense
(37:06):
for that particular strategy?
Joseph Marohn (37:08):
Yeah, and that makes perfect sense because
we're not to the level of pace,obviously, and the amount of
deals we're doing.
We have the funding to do soourselves.
So we're like, why take moneyout from a private money lender
and have to pay interest on that, when we could just keep
funding our own deals for nowand then, as we start to scale,
then we'll start looking intomore private money lending on
(37:30):
further deals.
Okay, so can you discuss howprivate money lending can be
applied to various real estatestrategies, such as fix and
flips, rental properties anddevelopment projects?
Abraham Gray (37:41):
Yeah.
So on fix and flips, they'retypically around six months.
You know loans and you'd borrowmoney and you can pay a high
interest because if you buy itat a big deal there's a lot of
profit in a fix and flip, if youknow if you're doing the rehab
right and you're doingeverything right and you know
what you're doing, so you canpay a high interest On a buy and
hold deal that you are doing.
you really can't pay the sametype of interest.
(38:02):
That's why I really only do fixand flip loans for six months
or less.
A fix and flipper can payreally high interest if you're
making a lot of money and it's awin-win for everybody.
For a buy and hold investorit's very hard to pay anywhere
near what a fix and flipper canpay because you have to have
that cash flow.
And if interest is too highthere's no cash flow on a buy
and hold, so too high with nocash flow on a buy and hold, so
(38:24):
you have to find a totallydifferent type of lender.
on a buy and hold, you have tofind someone who's going to loan
at a lower interest rate than afix-it-flipper, and also
someone that's going to loanmoney out for a longer period of
time, someone that only ismaking 2%, 3%, 4%, 5% on the
bank, but now could be thelender for 7%, 8%, 9% to you.
But a buy and hold person isfine with an 18%, 15%, 20%
(38:45):
because they're making so muchmore and they're going to turn
it over faster.
Joseph Marohn (38:50):
Right.
And then, what would you say asfar as like new development
projects?
Abraham Gray (38:54):
New developments are somewhere in between a fix
and flip and a long-term hold,because a new development takes
longer than a fix and flip, butit's way shorter than a buy and
hold.
So again, you have to find theperson that's going to charge
you about what a fix and flip isyou know, the person is
probably the money lender is,but hopefully a little bit less.
(39:15):
Or maybe work a deal to where.
Look, I'm going to guaranteeyou I see this a lot on fix and
flip loans and on the newdevelopment loans.
They'll be like look, I don'tknow if I can pay that type of
interest, but I think I might.
So what I'll do is let meguarantee you not even 10%
interest, but I'll give you 20%of the profit of my deal, like
50% of the profit of my deal,and that way you can't get hurt,
(39:36):
because if you don't make asmuch money on the deal and
you're still making moneybecause you're not getting a
high interest but if you'remaking a lot of money on this
deal, now everybody needs moremoney the private money lender
and them.
So that's another way to workand deal with the private money
lender.
Joseph Marohn (39:50):
Great advice, great advice there, abraham.
What advice would you give tobeginners who are considering
utilizing private money lendingfor their real estate ventures?
Abraham Gray (39:59):
I think it's crucial.
I think they need to Likewithout you know, unless you
just have a ton of money, mostpeople need a private money
lender.
So again, start posting stuffon social media, post wins, post
positive stuff, go to all thesenetworking events, you know.
Find a private money lender.
So when you have a deal thenyou know you have somebody right
there that can fund it.
Joseph Marohn (40:21):
Right, and that's why I love going to investor
events.
You know, every time you go toan investor event, anything you
would need in real estate is inthat room, right, and it's up to
you to make those connections.
So that's what I'm constantly.
Every time I'm networking andI'm constantly building my
private money list, building mybuyer's list, I'm always
(40:42):
connecting with other people.
So great point on that, andyou're absolutely correct.
So something I like to do is Ilike to give back to the
community and allow them to alsohave a voice on these podcasts.
Abraham Gray (40:53):
All right cool, Let me give you my cash app then
Okay, got it so.
Joseph Marohn (40:58):
So I generally I'll create a post asking if
anyone has any questions on onthe topic I'm covering and I and
I usually I'll just shout themout and choose a couple of the
questions to ask my guests.
So one of the questions.
It's actually a two partquestion.
So, luis Fernandez, actuallyhis question was does a private
money lender only offer monthlypayments or will they also defer
(41:21):
payments to the end of the term?
Abraham Gray (41:23):
So I've seen both.
A smart private money lendershould always get monthly
payments or will they also deferpayments to the end of the term
?
So I've seen both.
A smart private money lendershould always get monthly
payments.
However, I've seen tons ofprivate money lenders that defer
all to the end.
The reason why a smart privatemoney lender will get monthly
payments is because it pushesthe person to get this deal done
faster, because every monththey're making a payment and you
see that they're capable ofmaking this payment.
(41:49):
But if you're deferring it tothe end, it's just a lot more
riskier for the lender and Iwould charge I have done that
before, but I just charge moremoney it's a lot more likely
you're going to have a problemas a lender to get your money
back, so I would just charge ahigher interest.
Joseph Marohn (42:00):
Good point.
And then you kind of on hisnext question.
You kind of touched on this alittle bit, so, but I want to, I
want to read it back to you.
So he says he's spoken toseveral private money lenders.
Most of them are asking for aloan origination fee of one to
three percent of the loan amountimmediately after signing the
loan approval agreement letter.
This sounds like a scam to me,am I right?
Abraham Gray (42:20):
No, a lot of a lot of people will charge a higher
interest rate with no fees upfront.
And then some people willcharge a lower interest rate
with fees up front.
The scam is if they ask you topay them that 1%, 2%, 3% before
they fund the deal.
Typically, if it's not a scam,they'll be like it's fine to pay
(42:40):
that 1%, 2%, 3%, but it'll comeout of the money.
So let's say you're borrowing$100,000.
Instead of you paying them the$2,000 and then borrowing
$100,000, they should justborrow the $98,000 and it
automatically comes out.
I have done a bunch of loanswhere I charge a 2% or whatever
a registration fee.
I've never had the person payme up front.
I've always just wired that 2%less.
Joseph Marohn (43:03):
Okay, so as long as they're asking for it after
you sign the agreement, itshould be fair yeah.
Abraham Gray (43:10):
As long as you pay it.
They take out the money they'rewiring, you're fine.
If you have to pay them aheadof time, that's a red flag.
Could it be legitimate?
It could be, but that'sdefinitely a red flag.
That's not how it should work.
Joseph Marohn (43:22):
99% of the time.
Okay, cool.
Next question is actually frommy partner, ash, and his
question was what type of dealsmake sense for them to be a
private money lender versus aprivate money partner, and what
do they look for in either case?
Abraham Gray (43:38):
Yeah, so most private money lenders, or most
people that bought that loanmoney just want a guaranteed
return on their money.
So most people are going to beprivate money lenders because
they just want a guaranteedreturn.
A private money partner issomeone that has a bunch of
money, doesn't have the time tofix a flip.
They want to be a fixer-flipperand they want action in the
(44:00):
deal.
So they'll loan you money at nointerest or very low interest,
but they want a percent of theprofit.
And if you could find someone tobe a PMP instead of a PML, I
think that's a lot better forthe person borrowing the money
because you have no risk.
They're putting up the moneyand they're only making money
(44:22):
based on how you do.
So it's a lot safer for'reputting up the money and they're
only making money based on howyou do so.
It's a lot safer for the personborrowing the money because you
don't have to pay interesttypically or very little.
But as someone lending themoney, they want some sort of
guarantee most of the time,unless they see the deal and
it's a no-brainer great deal.
It's harder to get someone tobe a private money partner, but
(44:44):
there's plenty of those outthere.
Like I said, you find peoplethat want to be involved in
deals or something at the timeor can't find the deals, and
they believe in you, theybelieve in the deal, and that's
how you become a private moneypartner.
Joseph Marohn (44:54):
Right, right, great points, great points.
So awesome man.
Thank you, abraham, for takingthe time to answer all these
questions.
I feel like private moneylending is just such a large
topic to cover, so I wanted tomake sure that we got the
majority of the questionsanswered here today.
That way, newly, investors havea better understanding of what
to expect and what questions toask.
(45:14):
With that being said, I want tomake sure that we're not
leaving any questions unansweredhere today.
Is there anything else wedidn't cover here today that
newcomers should know, or anyspecific concerns that you think
we should cover today?
Abraham Gray (45:26):
I mean, there's a million things we could talk
about?
Joseph Marohn (45:28):
I mean, we covered the most important stuff
, you know.
Abraham Gray (45:31):
So I think the most important stuff is what
everyone should know and that'swhat we covered.
But obviously there's tons ofnuances on each little thing,
what they are, and you know.
Obviously if people havequestions about it, we'll answer
them all, or we can do anotherone another day for more
advanced.
But I mean I think anyone thatwants to get into it has enough
(45:51):
information now to know at leastwhat they should do and
shouldn't do and at leasthopefully be safe to where they
won't do anything stupid andlose money.
But you know, they can alwaysreach out to you, they can
always reach out to me.
Joseph Marohn (46:05):
And we, but you know they can always reach out
to you, they can always reachout to me and we can always give
them advice as well.
I think that's a great idea,man, because the purpose, like I
said in the beginning, like Iwanted this to be more towards,
you know, a beginner standpoint.
You know that's why a lot ofthese questions were like very
beginner questions.
But you know, as you said,private money lending, there's a
lot to it and I feel like maybe, maybe, we could do a part two
on this and get more detailedquestions answered.
That's a great idea.
Abraham Gray (46:26):
I mean just that second position loan are like we
could have hours ofconversations about the pluses,
minuses and risks.
And I'll add, just on secondposition we didn't really get
into it too much.
I thought a little bit just tounderstand why second position
is a lot more risky.
But also, if you foreclose andyou are in second position, you
(46:47):
have to really know who thefirst position person is.
You should be talking to them,you should know ahead of time,
you should know how much they'reowed, what their interest is.
You have to know all thesedifferent things or else you're
jumping in blind and you lose alot of money.
But second position is like awhole other story we've talked
for hours and hours about.
Joseph Marohn (47:04):
Right, we can probably do a whole topic and
discussion on that alone.
Yeah for sure, Perfect Abraham.
Where can people find you andare you still currently open to
funding deals?
Abraham Gray (47:15):
Yeah, I'm always funding deals.
I do Gator deals every day.
I'm funding the whole closesand EMD deals every single day,
every single week.
Pml I still do, but right nowI'm pretty much where I want to
be with the money I have out.
But as I get money in, I letmoney out right away.
So yeah, 100%.
(47:36):
If you want to reach me,obviously on Facebook, abraham
Gray.
On Instagram it's Abraham GrayOfficial.
I have a YouTube channel that Ihave for almost a year and a
half AbrahamGray G-R-A-Y YouTube.
I answer all my emails, answerall my messages on Facebook and
everything else.
So if you have any questions,yeah, just reach out to me and
we'll answer every question.
Joseph Marohn (47:57):
Awesome.
Well, make sure to plug yourYouTube handle on the video here
.
That way, people can reach outto you and check out your stuff,
man, because I've been watchingyour content, man.
It's very beneficial.
Well, abraham, it's been anhonor to have you on the show.
You're an absolute monster inthis real estate game.
We're all hoping to reach alevel that you've already
succeeded at, and I wish younothing but continued success,
(48:20):
brother.
Abraham Gray (48:21):
Yeah, you too.
Thanks for having me.
Joseph Marohn (48:23):
I hope everyone gained a ton of knowledge from
Abraham Gray today.
Make sure you guys take asecond to like, subscribe and
drop a comment down below so wecan reach as many people as
possible.
I think you guys are going tofind a ton of value from this
episode and I want to make sureit reaches as many people as
possible.
Also, stay tuned for my nextepisode, where we'll be bringing
(48:44):
on a powerful speaker by thename of Richie Matthews and
he'll be covering the topic ofrental arbitrage and how exactly
a subleasing model can work foryour business.
It's going to be a greatepisode.
Abraham Gray (48:56):
Thank you again, abraham have a good day, brother
, thank you.
What up everyone and welcome back to the Real
Estate Unlocked podcast.
I'm your host, Joseph Marohn,and today we're going to be
discussing a very importanttopic in real estate highly
requested video DMs going crazy.
Today we're going to bediscussing the topic of private
money lenders.
Private money lenders are notonly crucial to any real estate
(00:34):
investor's business, but may bethe only solution on why a deal
even goes through.
Private money lenders areindividuals who utilize their
own capital for investments suchas real estate and profit off
the interest that's paid on theloans.
Private money lenders are notaffiliated with banks or any
other financial institutions andoftentimes interact directly
(00:56):
with the borrower individually.
They are a valuable asset toinvestors because they often
have different approvalrequirements and a faster pace
than traditional financingprocesses.
While the qualifications andinterest rates will vary based
on the situation, the process ofworking with private money
lenders will be similar to otherloans.
Now you know how we do it onthe Real Estate Unlocked podcast
(01:20):
.
If we're going to do it, we gotto do it right.
We can't just bring on anyprivate money lender.
We need to bring on the privatemoney lender.
Today we have a special guestwho is a multimillionaire
investor, multimillion dollarbusiness owner, very successful
individual, but you would neverknow, because every event you
(01:41):
catch him at he's out wearingflip flops.
Because every event you catchhim at he's out wearing
flip-flops.
Abraham started his firstbusiness when he was just 15
years old and since then hasstarted, bought and sold a few
hundred other businesses.
He also bought his firstproperty at the age of 22, and
(02:02):
since then has bought thousandsof other properties.
He now teaches others how to dothe same.
So, without further ado I'vebeen talking long enough,
everyone if you will, pleaseallow me to formally introduce
to you Abraham Gray.
Abraham, what's up, brother?
Glad you can join us today.
Abraham Gray (02:17):
Yo, what's up?
Good to see you, good to behere and share knowledge and
learn from each other.
Joseph Marohn (02:24):
Absolutely, absolutely Well.
I appreciate you taking thetime out of your busy schedule
to sit down and educate myviewers on such an important
conversation and topic at hand.
Oh for sure, sure, how'severything going with you today?
Abraham Gray (02:36):
Yeah, everything is great.
Yeah, we had a little delay.
I was supposed to be on a fewminutes before now, but we're
good, we're all good now.
Joseph Marohn (02:48):
No, we're all good, brother, we're all good.
So first just tell us a littlebit about you and how you found
success at such a young age man.
I mean most kids are ridingbikes, playing video games or
screwing around chasing girls atthe age of 15, but you were
thinking about money.
Tell us a little bit about thatand how that mindset came about
.
Abraham Gray (03:09):
Yeah, no, I was always thinking about money.
So you know, early on I had likea kind of a rough childhood and
you know I went from likefoster family foster family
boarding school and when Istarted making a little bit of
money when I was 15, I realizedI was able to do more stuff and
have more freedom, and I justalways wanted that.
I always wanted to be able todo whatever I want and not have
to listen to people.
And making money and havingyour own money was the way to do
(03:32):
it.
So I just busted my ass hustleand do whatever I had to do to
make whatever I can, so I didn'thave to rely on other people.
And boom, here I am today.
Joseph Marohn (03:36):
That's great, man , because, like I said, most
people at that age, their mindis somewhere else, but you were
already thinking ahead, andthat's how successful people
have to think, so it's great youhad that mindset early on.
So the purpose behind thispodcast is to educate newly
investors just starting out onthe real estate journey and
might not have all the resourcesavailable to them.
(03:57):
So most of the questions askedtoday are just going to be from
a beginner standpoint and as wecontinue into the interview, the
questions may get a little moredetailed.
So let's start from ground zero.
What exactly is a PML or aprivate money lender, and why
would someone prefer going thatroute instead of just going to
the bank and getting traditionalfinancing?
Abraham Gray (04:16):
Yeah, so a lot of it really is what you said
earlier.
Basically, when you go to thebank, banks won't loan on a lot
of things.
But even if they will loan onit, there's a million paperwork
you have to do and all kinds offees and it just takes a lot of
time.
A PML you can borrow money andget the money that day.
Pmls have all different types ofthings they'll loan on that
(04:37):
banks won't, and they're justeasier and faster to deal with.
So most people would rather gowith a PML, especially if it's a
short-term loan or something,because they might need the
money right away and goingthrough a bank we can't get it
that fast.
Plus, some PMLs will give youmuch better terms, much better
interest rates, but, more thananything else, they just don't
(04:59):
have all the paperwork you haveto fill out, which is work that
a lot of people even fail to dobefore I have to fill out, which
is worth it for a lot of people.
Even if you fail a little more.
I have to do all that paperworkand get the money faster.
Joseph Marohn (05:06):
Right.
So there's definitely someadvantages there.
So you said, you can get itinstantly.
When you say instantly, howfast are we talking?
Abraham Gray (05:13):
I mean the right PMO will give it to you the
second you ask them They'll belike oh, you need that, there
you go.
I mean, usually it'll take atleast a day to a week, but I've
done tons of PMLs where I givepeople money the next day.
It's not super uncommon.
If I'm doing it for a property,I'll need the title to be run
(05:37):
to make sure that there's noother liens.
I'll need to get security deedsor keep a trust and promissory
notes and lender's titlepolicies, all these other things
.
But you can do all that withone day.
Joseph Marohn (05:49):
Right, right, absolutely.
So I can definitely see theadvantages there.
So you know, you and I, abraham, we're a part of an awesome
community called Sub2, right, wehave access to a ton of
resources and connections, butlet's say, I'm not a part of sub
two.
How would one even find aprivate money lender, and where
would I begin to look?
Abraham Gray (06:08):
So obviously the most common thing that people do
when they try to find a PML isto go to their family and
friends and people that theyknow really well, because PMLs
are really mostly based onhaving that good rapport with
you, like, if you don't trustsomebody, you're not going to
loan them money.
Joseph Marohn (06:24):
Who's going to trust you most?
Abraham Gray (06:25):
Your family and your friends.
That would be the first placeto start.
The next place, I would say, ison social media.
I get tons of deals, whetherit's PML or other types of deals
on social media.
I post so much stuff.
I let people know what I'mdoing.
I let people know what I'msuccessful in.
What I'm successful in, youknow a lot of people will
respond to me do you ever needhelp with something?
(06:45):
Can I ever, you know, be partof your deal?
Can I partner with you?
Can I whatever PML with you?
You know something like that.
So the reason why I get thosepeople that do that is because I
post so much stuff and peoplesee that I'm on social media.
All the different things thatyou do will get you a lot more
business, will get you a lotmore PML, if that's what you're
(07:05):
looking for.
Of course, going to differentevents, going to local meetups,
going to masterminds, going tonetworking events are super
crucial because if you talk andyou find tons of people in there
, some people need money, somepeople have extra money, every
time I go to an event andsomebody asks all right, who in
this room has money to lend, whoin this money needs money.
(07:26):
There's literally tons ofpeople raising their hand for
both topics, and the amount ofmoney these people have to lend
are astronomical.
Now, everybody has a differentcriteria.
Some want to lend on land, somewant to lend on single family,
some want to lend on multifamily.
Whatever it is, you find theright one for you and you're
good.
Joseph Marohn (07:46):
See, I think that's the beauty of private
money lending, because itdoesn't necessarily have to be
someone in real estate, right,it could be any type of person
with some money that just wantsa great return, or maybe, you
know, like you said, a familymember.
So very good advice right there.
So let me ask you so, if I'venever done a deal before, will a
private money lender even workwith me?
(08:06):
And if they do, what might theyask of me?
Abraham Gray (08:09):
Yeah, so that's the great thing about private
money lenders you find the rightone.
They'll deal with you.
A lot of private money lendershave a lend box, let's say,
where they'll only lend peoplethat have done deals before or
people that they know thatthey've done deals with, but
some deals before, or peoplethat they know that deals with,
but some people will lend toanyone.
So it's just like you know.
If you're in real estate andyou're trying to buy a deal, are
you going to buy the first dealthat you're trying to buy?
Are you going to buy the secondor third?
(08:31):
You might need to go through 20, 50, 100 deals to get a deal,
or two deals.
Joseph Marohn (08:36):
It's the same thing with lenders.
Abraham Gray (08:36):
You got to find a ton of different lenders and
there that will lend to peoplethat have never done a deal
before.
Joseph Marohn (08:44):
Okay, so let's say I do find the one that fits
me.
What kind of questions should Ibe asking them?
Abraham Gray (08:50):
The only really thing that I would ask a private
money lender is are you loaningmoney and if so, what are you
loaning money on and what areyour terms requirements?
And basically that's it.
After that, you just let themask you all the different things
that they need from you to feelcomfortable with you.
Joseph Marohn (09:07):
Let them do their due diligence.
Ok, great, great.
So what's the differencebetween a private money lender,
a hard money lender and, let'ssay, a gator lender?
Yeah, so a private money lenderis just a regular person, that
is not in the business at allwhatsoever and we'll just loan
money because they want to get abetter return on what they can
get on their money earned.
Abraham Gray (09:30):
A hard money lender is an institution, a bank
, some sort of bank.
It doesn't have to be a bank,but someone that has a company.
That that's what they do andthey have a set criteria and
they need a lot of paperwork andit's more sort of like a bank,
right, so you do it at the bank,or a regular person.
And then a Gator lender issomeone that is trying to lend
(09:52):
money, but only for very, veryshort periods of time, like
sometimes a day, sometimes up toa month, but not much longer,
and they're looking for biggerreturns but for a shorter amount
of time.
So most Gator lenders arelending on EMV loans and those
are usually typically three tofour weeks or double closes,
(10:12):
which are basically the same dayor next day, Great.
Joseph Marohn (10:16):
So are you doing both personally or are you more
on the private money lendingside?
Abraham Gray (10:20):
I do a lot of both .
I actually prefer the GatorLender stuff because it's a
bigger return and a fasterreturn.
So I do probably more GatorLending than anything else,
although I do a ton of privatemoney lending too.
But the problem with privatemoney lending is no matter how
much money you have, you'regoing to run out of money at
(10:41):
some point.
So I keep like $10 million ofmy own money that I lend out to
people for private money.
Joseph Marohn (10:46):
But it's literally like most of the time
that $10 million is out.
Abraham Gray (10:50):
So I'm only lending on new deals as I get
paid on some of the deals that Ialready have out.
I mean, if I had $100 millionI'd still run out of money
because then there would be morepeople.
But with transactional, withGator lending, it's really hard
to run out of money because youget the money turned so fast.
So I really like that model.
Joseph Marohn (11:10):
I just want to clarify real quick.
Back that up.
You said $10 million, rightyeah, that's awesome man.
You're the right private moneylender to have on their books,
right yeah, I know.
Abraham Gray (11:22):
So my lend boxes, I only lend in first position
and I only led for deals inGeorgia, 95 plus percent in the
Atlanta market.
But I only live in Georgia, soI never lend money outside of
Georgia, but yeah, in Georgia Ihave, but I literally have way
more people that want to borrowmoney than you know we're store.
I'm actually starting a fundthis month where I'll have
(11:47):
probably 50% or double theamount of money to lend out but
it'll go fast because everybodywants to borrow money.
Joseph Marohn (11:54):
What kind of fund are you doing?
Abraham Gray (11:57):
So if you know Alexis Morgan, she actually is
the one that started the fundand basically she's running it
and doing all the paperwork andI'm basically in charge of just
putting the money out and makingsure everyone gets their
interest every single month andstuff like that.
But it's just a fund for peopleto put money in that you know,
we guarantee them 12% return orhigher, based on you know
(12:19):
different things, but minimum12% and they get paid every
month or every quarter of theirinterest.
And then it keeps going.
But all of that money is usedto do PML on single family homes
in first position in theAtlanta market.
So I buy hundreds of homes ayear in the Atlanta market.
(12:41):
So I know how to comp.
I know what stuff's worth.
I make a lot of money on them,but I very rarely do a bad deal.
Joseph Marohn (12:48):
I know if somebody else is getting a good
deal.
Abraham Gray (12:50):
If someone's buying a good deal, I'll loan
them the money At the worst casescenario if they don't pay, I
only loan them enough to where Iknow that I would buy it for
more than what I loaned them.
I would just foreclose propertyover or whatever.
But I never have to do thatbecause everyone on the money
team knows that they have a lotof equity in it.
So we'll never let them.
You know not, they'll never notpay you.
(13:11):
It makes no sense because theywould lose a lot of equity.
Joseph Marohn (13:15):
Right right Now.
That's a smart idea, man,putting that together.
So what kind of actionablesteps can be taken to build a
like, a genuine connection or atrust with this person?
Abraham Gray (13:34):
And as far as a business relationship as it
grows and we're doing more dealstogether, is it possible to get
more favorable terms?
Yeah, I mean depending on theprivate money lender.
I have a minimum amount that Icharge, but I do charge more
than that sometimes, dependingon if the deal I don't like as
much.
So you just have to find theright private money lender that
will charge less.
There's private money lendersthat will charge a lot less than
others and there's some thatneed a lot more.
Usually the ones that are veryexperienced and can do a lot of
(13:59):
deals will charge more becausethey have plenty of people
asking them for money and theycan get it.
But someone that's newer, anewer private money lender would
probably give you a better deal, because they just want to get
their money out there and theymight not know how much people
to loan to.
Joseph Marohn (14:10):
So if you're trying to get the best deal.
Abraham Gray (14:12):
Yet find someone that doesn't have a lot of
people always asking for moneyand someone that isn't making
hardly any money on their money.
Whatever you offer them, it's alot more and they feel good
about it.
Joseph Marohn (14:22):
Right, right, and then and they feel good about
it Right, right.
And so could you walk beginnersthrough the typical process of
applying for a private moneyloan, from the initial inquiry
to the actual funding, or isthere any applying process at
all?
Abraham Gray (14:34):
Yes, the process for me goes like this People ask
me can I borrow money?
Are you lending money?
And I'll be like, let's say Ihave extra money to lend.
At the time I'll be like, yes,I'm lending my boxes.
It has to be in first position.
I charge an amount of 18%interest, which is 1.5% a month.
(14:57):
It has to be in Georgia,preferably in the Atlanta market
, but definitely Georgia.
Then I'll say send me yourproperty that you want to borrow
money on.
How much do you need to borrow?
What's your entry strategy?
And then I'll look at it to seeif I think it's a good deal or
not.
And then I'll be connected to aclosing attorney here in
(15:18):
Georgia and I'll lead them toget me the four things I need on
every deal which is thesecurity deed, a promissory note
, a lender's title policy andthen, of course, insurance on
the property.
So once I have those four things, the title's run, everything
else.
I know my first position.
Then the closing attorneyfinalizes all the stuff.
I give them all the informationon the loan, what all the terms
(15:40):
are that gets put into thepromissory note, and then of
course, the amount that's aboutthe security fee that gets filed
in the county.
I will first lean on thatproperty and then, once the fix
and flip, is over, like 90-somepercent of my loans are for fix
and flips.
Once it sells, I get paid back.
Joseph Marohn (15:58):
Great, great man.
Is there a particular reasonwhy you only go to Linden
Georgia?
Is that so you can just huntthem down if they're not paying
you, or what?
Abraham Gray (16:07):
Well, there's a lot of reasons.
That's actually a good question.
So, first off, I know all thelaws in Georgia.
So when I say all the laws, Iknow how much you can charge.
I know the process to forecloseif someone doesn't pay me,
which is really important.
Joseph Marohn (16:20):
A lot of people with loan money in LA states.
Abraham Gray (16:22):
They don't even know what the foreclosure
process is if someone doesn'tpay.
So I know I actually haveforeclosure attorneys on hand
that are ready to foreclose.
Now I've done thousands of PMLs.
I've only had to use aforeclosure attorney three times
and out of those three timestwo people ended up just giving
me a deed of loot back.
So I ended up giving me thehouse back and I worked to deal
with them.
The third person the day beforethe auction actually found
(16:44):
somebody else to pay me back.
So I never even have toforeclose.
But it's because I'm very safewith how much I lend people.
I lend people an amount thatthey'd be an idiot to lend me
foreclosed because they'regiving up so much equity.
But that's pretty much theprocess.
But with Georgia also, I knowthat it takes me two months to
foreclose on somebody.
If but with Georgia also I knowthat it takes me two months to
(17:05):
foreclose on somebody.
If somebody doesn't pay mewithin two months, I can get
that property sold and get mymoney back.
A lot of states it could be sixmonths a year or even longer.
So I know the Republican statesoverall are way more easier to
foreclose and get your moneyback sooner.
But I know some Democrat statesit could take a year or two
(17:26):
years to foreclose and get yourmoney back.
You just got to know are youcomfortable being in a state
that can take you that long ordo you not want to?
I would make sure that you knowthe state, know the laws, have
a foreclosure attorney on handthat you don't have to figure it
out if you come to that.
Also, again, I learned in firstposition if you start loaning in
second position, you, if youstart loaning in second position
, you are going to have a lot ofproblems.
So I used to loan in first andsecond position, a little bit in
(17:46):
second position and I've donethousands of deals in first
position.
I've had three where I actuallyhad a problem, but I actually
didn't have a problem at the endbecause I was able to get my
money back or worked it outbefore the foreclosure.
I've done 50 deals total in mylife or less that were in second
position.
(18:06):
I've probably had problems with15 to 10 to 15 of them, so 20
to 30% and that's a big problem.
A couple I never got money backbecause of a bunch of different
reasons, but it's because youknow second position is a lot
tougher for a lot of that stuff.
The whole other conversationcan be a long time, but I really
don't want to be in the secondposition anymore.
It's very rare, like once in ablue moon.
I know the person really welland it's super secure and
(18:29):
whatever, but it's still it'svery risky.
Joseph Marohn (18:33):
No, it makes sense.
I mean, you're in Georgia, it'syour own backyard and you know
the laws well, so you know, asyou just said, other states have
their own laws and whatnot, soit makes perfect sense, okay,
other states have their own lawsand whatnot, so it makes
perfect sense, okay.
So I'm brand new to real estate.
I managed to get a deal on acontract.
I want to be no money out ofpocket.
Could you explain some commonterms and conditions that
(18:53):
lenders might offer to newlyinvestors and how do the
interest rates and feestypically work?
Abraham Gray (18:59):
Yeah, so I mean, what I see is most people do
interest only for a PML untilit's paid off.
Uh, usually somewhere between asix month, 12 month pooling.
I would do six months but Ialways extended it.
People are paying Right.
Um, I usually see interestrates anywhere from uh three
(19:19):
quarters of a percent a monthfor people that just are brand
new, that don't know whatthey're doing, to two or three
percent a month in interest.
I charge one and a half percentright in the middle, but those
are the rates that I see.
Obviously, if you know theperson well or if it's someone
that's newer, doesn't have waysto put the money out, they're
going to give you a better dealand better terms.
If you haven't done it much, Idon't even know how to protect
(19:40):
yourselves very well.
Their terms they haven't donemuch and I don't even know how
to protect themselves very well.
But that's pretty much what Isee.
Joseph Marohn (19:46):
I see that people that know what they're doing
never really get screwed and arepretty much safe.
Abraham Gray (19:51):
But newer people that are getting into it.
I see a lot of people losemoney.
I see a lot of people thatdon't know what they're doing
and loan too much money on adeal or money in the wrong state
or money maybe not in firstposition and they don't
understand the risks or theydon't have the right paperwork
or something, and I see a lot ofpeople lose money If they talk
to me first, they talk tosomeone that doesn't do it first
(20:12):
.
They can avoid all these issuesbecause there's plenty of ways
to do it safely and make a lotof money.
Joseph Marohn (20:16):
Right, and that's great points you brought up,
and that's actually the mainpurpose of this interview.
I want to get more knowledgeout there to people so they're
making sure they're protected,right?
So would a private money lenderfund 100% of my deal?
Abraham Gray (20:32):
Yeah, so again, every private money lender is
different.
I will fund 100% of somebody'sdeal if they are buying cheap
enough, let's say the home'sworth $100,000.
I might loan.
Let's say let's make the number.
Let's say I loan up to $70,000because that's what I feel
comfortable on that home.
So if they're buying the homefor $80,000, I'll loan $70,000.
They have to come up with theother 10.
(20:52):
If they're buying it for$60,000, I'll loan them the
whole amount.
Joseph Marohn (20:56):
Okay, that makes sense.
And then, what kind ofnegotiation strategies can
beginners employ to securefavorable terms?
Abraham Gray (21:05):
So if you're trying to borrow money again,
it's just figuring out who theright private money lender is
for you.
If you're going to borrow moneyfrom me, I'm never going to go
less than 18%.
It's never going to happen.
I would borrow money for lessthan 18% just because I know I
could lend it for 18% or more.
So if you're trying to borrow,money for under that, then
you've got to find someone thatis willing to do it.
(21:26):
If you are trying to findsomeone that's willing to loan
you money for a longer period oftime, maybe for a few years, if
you're trying to do a buy, andhold then you've got to find a
different type of money lender.
If you're trying to find someonewho wants to loan you money in
(21:47):
a second position, you have tofind that type of money.
So it's just a matter offinding the right one.
There's not really, there'sreally a private money lender
out there just for any type ofsituation, as long as you know,
they feel that they're going tomake money, and they can do
better with lending the moneythan what their money is doing
without it.
Joseph Marohn (21:59):
Right.
Right, and it's kind of likeyou know we kind of already
talked about, you know the timeframe.
It varies, right.
You know some people will giveit right away, some might take a
little longer.
But how is the money receivedLike?
Should I be sending a check, adirect deposit, wire transfer?
Abraham Gray (22:15):
The actual lender.
Joseph Marohn (22:16):
Yeah, the actual lender.
Abraham Gray (22:18):
Yeah, so the lender, I mean in theory.
99% of the time the moneyshould go through the title or a
closing attorney.
Joseph Marohn (22:27):
Right.
Abraham Gray (22:28):
The exceptions would be this is for the lender
sending you the money.
The exceptions would be iftitle or the closing attorney,
the reason why you send thetitle or closing attorney first.
This is the reason why first.
This is the reason why it'sbecause they're going to make
sure that they have all thecorrect documents, the
promissory notes the deed oftrust, the title insurance,
(22:48):
whatever they need.
They're going to make sure it'sall filed and all done
correctly before they give theperson that's borrowing the
money the money.
So that's, why you go throughtitle, so that way you have all
the documentation.
If you need it for clothes,it's all there.
So that's why you have to fillit.
However, if you were to haveTidal fill all that stuff out
with the buyer and then Tidalemails you or tells you look,
(23:12):
they signed everything, I'mready to file it, you can send
the money directly to them, thenyou could.
Then you could send it directlyto them.
That happens less than 1% ofthe time.
Usually it's a lot safer to gothrough title because you know
that title is not allowed tosend the money until all that's
done.
But if title technically tellsyou that all the paperwork is
(23:33):
done and everything's filed, intheory you could wire the person
directly because you'reprotected, because everything's
filed.
But you got to make sure.
But that's super rare.
I would say 99 plus percent ofthe time it goes through title
and that's really the reason why.
So you're protected, so theperson can't get the money and
then all of a sudden they don'tpay you and you try to foreclose
and then the stuff wasn't filed.
(23:53):
The stuff wasn't filled outright, that's the direction.
Joseph Marohn (23:57):
Absolutely.
If I'm going to be lendingmoney, I'm going to be sending
it to the title company just tomake sure that nothing can
happen.
They can just run off with yourmoney.
So what kind of due diligenceshould one undertake before
entering into an agreement witha private money lender?
And there's a ton of scamartists out here asking for
routing numbers, asking foraccount numbers.
(24:18):
How are both sides protected?
Abraham Gray (24:20):
So if you're the borrower, I would never send a
private money lender any fees upfront.
I have never asked anyone forfees, ever when I'm doing a
private money loan.
I basically will wire the moneyto title and if there are any
fees I charge, it's going tocome out of the money I wire.
(24:41):
So if I have to wire someone$100,000 and I'm charging $2,000
of fees up front, well, I'mjust going to wire $98,000.
I'm not going to make them pay$2,000 and after I get $2,000,
I'll wire $100,000.
Joseph Marohn (24:53):
Right.
Abraham Gray (24:54):
So everyone that is scamming like every lender
that's a scam lender will belike oh, you have to get me
money up front.
So anytime you have to getmoney up front.
Joseph Marohn (25:02):
That is a big red flag.
Abraham Gray (25:03):
There are some times where you know hard money
lenders and different peoplelike that will ask for money up
front it should be very minimalamounts.
It's usually for an appraisalor something like that that they
don't want to pay out of theirown money.
But you just have to be carefulthat that's not a scam person,
you know if someone asks you formoney up front.
You've got to really vet themand find out all the different
people you're blowing money to,and hopefully you should know
(25:24):
some of them to verify thatthat's not a scam.
But sending money up front is abig scam For a lender sending
money outside of title sendingmoney directly to the person
you're blowing money to is a bigred flag for a scam as well.
Like I said, there is that oneexception where you can do it,
but it's super rare that a titlecompany is going to say, okay,
I'll do all the paperwork andyou can just wire them directly
(25:46):
afterwards.
That's super rare I see thathappen once in the blue moon,
but it's usually when you knowthe person really well and you
know the title company reallywell and everybody knows each
other really well.
But if everyone doesn't knoweach other really well and you
haven't done multiple deals andknown each other for a long time
, that should really neverhappen.
Joseph Marohn (26:03):
That's some great info.
Thank you for providing that.
What are some effectivestrategies someone can use to
ensure they can comfortablyrepay the private money loan
with the agreed upon terms?
Abraham Gray (26:15):
Yeah, so basically , the person that's lending the
money should underwrite the dealand understand that, look,
there's profit in this deal.
Look, I am charging this person$2,000 a month.
They're probably going to needsix months, so that's $12,000.
They're paying $100,000 for theproperty.
They're spending $25,000 onrehab.
So $100,000 plus $25,000 plus$12,000, that's $137,000.
(26:36):
This property should sell for$190,000.
So there's 30,000, 40,000profit after my private money.
Now, if you underwrite it andyou're like, wait a second,
after all these fees, there's noprofit.
You might have a problemgetting your money back.
You shouldn't have loaned themthat much money.
Joseph Marohn (26:52):
So it's basically all underwriting and making
sure.
Abraham Gray (26:55):
So obviously most private money lenders want to
make as much money as possibleon their loans.
There's a fine line Like youwant to get people a good deal,
you want to get a good deal, butyou also have to get people a
good deal.
So if you're charging way toomuch, you might put them in a
position where they can't payyou.
So you've got to make sure thatthere's room for them to make
money as well.
If you don't make money, you'realso a bad deal, because
(27:17):
everyone has to make money.
Joseph Marohn (27:18):
Right.
Abraham Gray (27:29):
Right.
And so then, what would happenif the loan didn't get paid back
on the agreed terms?
What happens next?
I wasn't in agreement and I'mgoing to be a lot more strict
with that person going to do italone in the future.
But if I see that they'retalking to me or they're trying
to work something out, then I'llwork with them.
If they go radio silent and youcan't get a hold of them, I
(27:52):
just assume that they're dead.
I assume they're dead and ifthey're dead, the only way to
get your money is to foreclose.
So if they don't respond to meor they can't, work, any deal
that's acceptable to you or me.
whoever's willing to money, thenyou foreclose.
It's really easy to foreclosein Georgia and that's why I live
here.
Joseph Marohn (28:12):
Yeah, I'm so glad you brought that up because so,
since we're on the subject ofboth sides being protected,
let's talk about communicationand transparency for a second.
You know, I'm sure you've seenquite a few lenders in the
community been getting burnedand it's just an unfortunate
situation and I don't think it'sthe borrower purposely just
trying to burn that person.
(28:32):
I think it's more of acommunication and a lack of just
being transparent with thatlender, right?
So how important iscommunication and transparency
between the borrower and theprivate money lender, and what
expectations should beginnersset?
Abraham Gray (28:47):
It's crucial Any single time your lender calls
you or emails you, you've got torespond or answer the call.
If not, they think you'reavoiding them.
Joseph Marohn (28:55):
So communication is crucial, but the reason why
most people that we know thatare losing money.
Abraham Gray (29:00):
Are losing money, they're very new.
Joseph Marohn (29:01):
They don't know what they're doing.
They're making a lot ofmistakes.
Abraham Gray (29:03):
They're not doing any of the things I just told
you you need to do.
If they do everything I'mtelling you what to do, which is
making sure you have all thepaperwork done right, do a few
title, making sure that you compthe property right and you're
only loaning enough to where youknow that they can pay you back
because they're getting a good.
You can't loan money to somebodythat paid too much for a
property.
You can only loan money topeople that got a really good
(29:25):
deal on the property.
So if you're just to loan moneyto people and you're not seeing
if they got a really good dealon the property, that's just
like buying a property for morethan it's worth.
You're going to lose moneyprobably Right.
Joseph Marohn (29:36):
And so then, when they're asking you all these
questions, they're asking it fora reason, right, because
they're trying to do their owndue diligence and underwrite the
property properly.
So we established that not allprivate money lenders are the
same.
Each has their own terms andconditions and how they choose
to work with you.
What are some key qualities orcriteria that new investors
should look for when selecting aPML to work with?
Abraham Gray (30:00):
just someone that will do what they need, someone
that their lend boxes in whatthey're trying to borrow, but
then you know, obviously tryingto find the best terms that they
can get whether it's the bestinterest rate, the most amount
of money, the longer the balloon.
So all those things areimportant for someone looking
for a lender, but obviouslysomeone that's looking for a
(30:22):
lender is going to search for asmany as many people as they can
and then pick the best one thatmatches up.
Joseph Marohn (30:29):
Right, and then you talked a little bit about
first position and foreclosing,but how is collateral typically
handled and what types of assetsare commonly used as security
for loans?
Would lenders be okay withtaking second or third position,
or is it first position alwaysa requirement?
Abraham Gray (30:46):
For me, first position is pretty much always a
requirement, just because thesecond position can be a real
hassle if they don't pay you.
I can give you a quick exampleof a few reasons why.
But I mean, there are plenty ofpeople in second position.
Most of them don't reallyunderstand the risks and a lot
of people are newer that do it.
(31:06):
Now would I loan in secondposition?
If it's someone that I knowsuper well, would I loan case
money in second position.
I'd loan it then in fifthposition it doesn't matter
because I know he's going to payme.
But would I loan money insecond position to someone that
I don't know really well or havedone tons of deals with and
know that they've done plenty ofother loans and it paid off?
Joseph Marohn (31:26):
Hell no.
Abraham Gray (31:26):
I never would.
So in second position.
This is the reason why you'rein really bad shape in second
position.
I'll give you one quick one,although there's a lot but I
don't have time to go throughthem all.
But just to put it inperspective let's just say a
home is worth $100,000.
Let's just say you'recomfortable lending 70%.
So let's say you're comfortablein $70,000 on this $100,000
(31:46):
home.
Okay, cool.
In first position.
Let's just say now the personalready has a loan on the
property for $50,000.
They need 20,000 more.
So they're coming to you andthey're like look, you can get a
second position, but look, Iknow you're only getting that
70,000 on it.
Guess what I only owe $50,000first, I just need $20,000 more.
It still falls within that$70,000, so you're still safe,
(32:08):
right?
Yeah, of course you thinkyou're safe.
You're not, but you think youare.
So that's the problem mostpeople have.
I'm going to explain to you whyyou're not000.
So they're still $30,000 worthof equity in their minds.
So that's the biggest problem.
What people don't realize is ifsomebody isn't paying you on
(32:31):
your second position loan, that$20,000 loan, if they're not
paying you on that loan, whoelse do you think they're not
paying?
Joseph Marohn (32:39):
Good point.
Abraham Gray (32:40):
They're not paying the first position probably,
either Most of the time they'renot paying the second position.
They're not paying the firstposition probably, either most
of the time they're not payingthe second position.
They're not paying the firstposition almost most of the time
.
So so what happens in thissituation?
Well, this is what happens.
Who knows how long that firstposition person is going to let?
that person slide without payingthem.
Some people might startforeclosure process in a month
(33:01):
or two.
Some people might let it go forsix, nine months because
they're busy or don't know whatthey're doing or whatever.
They're trying to work with theperson.
But let's just say it goes onfor five or six months.
Now, on top of that $50,000that's owed to that first
position, there's five or sixmonths worth of interest, five
or six months worth of latepayments and actually at this
(33:25):
point now they're going to hirean attorney, which that's going
to be added to the $50,000.
Then they're going to hire aforeclosure attorney that's
going to foreclose on that andthat's going to be another
$5,000.
Joseph Marohn (33:31):
Then you're going to have late fees and all these
other things.
Abraham Gray (33:33):
Before you know it , that $50,000 that's behind in
payments and interest.
Now, instead of owing $50,000,you owe the first position
$65,000.
So when the second position hasto close and they're owing
(33:54):
$20,000, and this home figure isgoing to go for $70,000, which
it might, the $70,000 might gofor foreclosure but guess what?
$65,000 is going to go to thefirst position.
You're going to get $5,000.
Might go for foreclosure, butguess what?
$65,000 is going to go to thefirst position?
You're going to get five that'sleft.
In the second position, you'regoing to lose $15,000.
Joseph Marohn (34:11):
That makes sense.
That's a great point that youbrought up there.
Questions even my partner Ashand I ran into early on were if
we have our own capital to fundour own deals, is it wise to
even utilize a private moneylender?
Why borrow money I now need topay interest on when I already
have the capital to do so?
What's your advice on that?
Abraham Gray (34:31):
So I would never borrow a ton of money, if I have
money, with the exception ofyou always want to have a
cushion, some extra money incase something bad happens.
So figure out the cushion thatyou need and keep that cushion,
but borrow the rest.
So let's say I have $100,000 inmy bank and I need $100,000 to
(34:51):
buy this deal, but you wannahave a 30, $40,000 cushion in
case some crazy shit happens.
Borrow 60,000, keep the 40,000there so you have a peace of
mind and less stress.
So if something happens, youhave that extra money or borrow
the money, borrow the whole$100,000, even if you have the
$100,000.
The reason why you borrow thewhole $100,000 is because maybe
(35:12):
you're going to find anotherreally good deal in the next few
months and you don't want tohave to find a private money
lender then because you have oneright now.
So you have that extra $100,000for the next really good deal
and you might lose that reallygood deal if you didn't have any
money to come up with it, ifyou couldn't find a private
money lender at that time.
So a lot of people keep thatmoney because there's an
opportunity cost that if youdon't have it you might lose
(35:33):
money.
So those are the two reasonswhy I would use a private money
lender, even if I had my ownmoney.
But typically I would onlyborrow the amount needed to
where I still have that cushionor where I know I might have
enough money to buy another typeof deal that I might have
before this other deal is done.
Joseph Marohn (35:51):
Oh, that's a great point with the cushion,
because you know, all the timewe see, you know Pace is
teaching us like never use yourown capital, you know, always
use private money lenders.
Abraham Gray (36:00):
You know, and it's like every time we come up with
a deal, the reason why Pacesays that and it's really smart
is because of the way Pace doesdeals.
Most people don't do deals theway Pace does deals.
If you want to be like Pace andyou want to do deals like Pace,
you should borrow money forevery deal.
Why?
Because Pace does deal afterdeal after deal after deal, no
(36:22):
matter how much money Pace hasor anyone has, you're going to
run out of money, but Pace knowsthat he wants to keep doing
deals, so he'll keep getting newprivate money lenders even
though he has money, because atsome point he might need to use
his money for stuff on dealsthat he can't get a private
money lender for.
So as long as you keep gettingprivate money, and as long as
you underwrite it where you'regoing to make money with private
money lenders.
he also looks at it like this Ican do 10 deals with private
(36:44):
money lenders and maybe make10,000 deals instead of 20,000
deals, but I'm doing 10 dealsand make 100,000 bucks.
But I'd rather do 10 deals andmake 100,000, or two deals and
make 40,000.
So that's the way Case looks atit and for him it totally makes
sense.
But it doesn't make sense foreverybody.
How many deals can you handle?
So some people can do it andthen it makes sense for them,
but if you only do one or twodeals it might not make sense
(37:06):
for that particular strategy?
Joseph Marohn (37:08):
Yeah, and that makes perfect sense because
we're not to the level of pace,obviously, and the amount of
deals we're doing.
We have the funding to do soourselves.
So we're like, why take moneyout from a private money lender
and have to pay interest on that, when we could just keep
funding our own deals for nowand then, as we start to scale,
then we'll start looking intomore private money lending on
(37:30):
further deals.
Okay, so can you discuss howprivate money lending can be
applied to various real estatestrategies, such as fix and
flips, rental properties anddevelopment projects?
Abraham Gray (37:41):
Yeah.
So on fix and flips, they'retypically around six months.
You know loans and you'd borrowmoney and you can pay a high
interest because if you buy itat a big deal there's a lot of
profit in a fix and flip, if youknow if you're doing the rehab
right and you're doingeverything right and you know
what you're doing, so you canpay a high interest On a buy and
hold deal that you are doing.
you really can't pay the sametype of interest.
(38:02):
That's why I really only do fixand flip loans for six months
or less.
A fix and flipper can payreally high interest if you're
making a lot of money and it's awin-win for everybody.
For a buy and hold investorit's very hard to pay anywhere
near what a fix and flipper canpay because you have to have
that cash flow.
And if interest is too highthere's no cash flow on a buy
and hold, so too high with nocash flow on a buy and hold, so
(38:24):
you have to find a totallydifferent type of lender.
on a buy and hold, you have tofind someone who's going to loan
at a lower interest rate than afix-it-flipper, and also
someone that's going to loanmoney out for a longer period of
time, someone that only ismaking 2%, 3%, 4%, 5% on the
bank, but now could be thelender for 7%, 8%, 9% to you.
But a buy and hold person isfine with an 18%, 15%, 20%
(38:45):
because they're making so muchmore and they're going to turn
it over faster.
Joseph Marohn (38:50):
Right.
And then, what would you say asfar as like new development
projects?
Abraham Gray (38:54):
New developments are somewhere in between a fix
and flip and a long-term hold,because a new development takes
longer than a fix and flip, butit's way shorter than a buy and
hold.
So again, you have to find theperson that's going to charge
you about what a fix and flip isyou know, the person is
probably the money lender is,but hopefully a little bit less.
(39:15):
Or maybe work a deal to where.
Look, I'm going to guaranteeyou I see this a lot on fix and
flip loans and on the newdevelopment loans.
They'll be like look, I don'tknow if I can pay that type of
interest, but I think I might.
So what I'll do is let meguarantee you not even 10%
interest, but I'll give you 20%of the profit of my deal, like
50% of the profit of my deal,and that way you can't get hurt,
(39:36):
because if you don't make asmuch money on the deal and
you're still making moneybecause you're not getting a
high interest but if you'remaking a lot of money on this
deal, now everybody needs moremoney the private money lender
and them.
So that's another way to workand deal with the private money
lender.
Joseph Marohn (39:50):
Great advice, great advice there, abraham.
What advice would you give tobeginners who are considering
utilizing private money lendingfor their real estate ventures?
Abraham Gray (39:59):
I think it's crucial.
I think they need to Likewithout you know, unless you
just have a ton of money, mostpeople need a private money
lender.
So again, start posting stuffon social media, post wins, post
positive stuff, go to all thesenetworking events, you know.
Find a private money lender.
So when you have a deal thenyou know you have somebody right
there that can fund it.
Joseph Marohn (40:21):
Right, and that's why I love going to investor
events.
You know, every time you go toan investor event, anything you
would need in real estate is inthat room, right, and it's up to
you to make those connections.
So that's what I'm constantly.
Every time I'm networking andI'm constantly building my
private money list, building mybuyer's list, I'm always
(40:42):
connecting with other people.
So great point on that, andyou're absolutely correct.
So something I like to do is Ilike to give back to the
community and allow them to alsohave a voice on these podcasts.
Abraham Gray (40:53):
All right cool, Let me give you my cash app then
Okay, got it so.
Joseph Marohn (40:58):
So I generally I'll create a post asking if
anyone has any questions on onthe topic I'm covering and I and
I usually I'll just shout themout and choose a couple of the
questions to ask my guests.
So one of the questions.
It's actually a two partquestion.
So, luis Fernandez, actuallyhis question was does a private
money lender only offer monthlypayments or will they also defer
(41:21):
payments to the end of the term?
Abraham Gray (41:23):
So I've seen both.
A smart private money lendershould always get monthly
payments or will they also deferpayments to the end of the term
?
So I've seen both.
A smart private money lendershould always get monthly
payments.
However, I've seen tons ofprivate money lenders that defer
all to the end.
The reason why a smart privatemoney lender will get monthly
payments is because it pushesthe person to get this deal done
faster, because every monththey're making a payment and you
see that they're capable ofmaking this payment.
(41:49):
But if you're deferring it tothe end, it's just a lot more
riskier for the lender and Iwould charge I have done that
before, but I just charge moremoney it's a lot more likely
you're going to have a problemas a lender to get your money
back, so I would just charge ahigher interest.
Joseph Marohn (42:00):
Good point.
And then you kind of on hisnext question.
You kind of touched on this alittle bit, so, but I want to, I
want to read it back to you.
So he says he's spoken toseveral private money lenders.
Most of them are asking for aloan origination fee of one to
three percent of the loan amountimmediately after signing the
loan approval agreement letter.
This sounds like a scam to me,am I right?
Abraham Gray (42:20):
No, a lot of a lot of people will charge a higher
interest rate with no fees upfront.
And then some people willcharge a lower interest rate
with fees up front.
The scam is if they ask you topay them that 1%, 2%, 3% before
they fund the deal.
Typically, if it's not a scam,they'll be like it's fine to pay
(42:40):
that 1%, 2%, 3%, but it'll comeout of the money.
So let's say you're borrowing$100,000.
Instead of you paying them the$2,000 and then borrowing
$100,000, they should justborrow the $98,000 and it
automatically comes out.
I have done a bunch of loanswhere I charge a 2% or whatever
a registration fee.
I've never had the person payme up front.
I've always just wired that 2%less.
Joseph Marohn (43:03):
Okay, so as long as they're asking for it after
you sign the agreement, itshould be fair yeah.
Abraham Gray (43:10):
As long as you pay it.
They take out the money they'rewiring, you're fine.
If you have to pay them aheadof time, that's a red flag.
Could it be legitimate?
It could be, but that'sdefinitely a red flag.
That's not how it should work.
Joseph Marohn (43:22):
99% of the time.
Okay, cool.
Next question is actually frommy partner, ash, and his
question was what type of dealsmake sense for them to be a
private money lender versus aprivate money partner, and what
do they look for in either case?
Abraham Gray (43:38):
Yeah, so most private money lenders, or most
people that bought that loanmoney just want a guaranteed
return on their money.
So most people are going to beprivate money lenders because
they just want a guaranteedreturn.
A private money partner issomeone that has a bunch of
money, doesn't have the time tofix a flip.
They want to be a fixer-flipperand they want action in the
(44:00):
deal.
So they'll loan you money at nointerest or very low interest,
but they want a percent of theprofit.
And if you could find someone tobe a PMP instead of a PML, I
think that's a lot better forthe person borrowing the money
because you have no risk.
They're putting up the moneyand they're only making money
(44:22):
based on how you do.
So it's a lot safer for'reputting up the money and they're
only making money based on howyou do so.
It's a lot safer for the personborrowing the money because you
don't have to pay interesttypically or very little.
But as someone lending themoney, they want some sort of
guarantee most of the time,unless they see the deal and
it's a no-brainer great deal.
It's harder to get someone tobe a private money partner, but
(44:44):
there's plenty of those outthere.
Like I said, you find peoplethat want to be involved in
deals or something at the timeor can't find the deals, and
they believe in you, theybelieve in the deal, and that's
how you become a private moneypartner.
Joseph Marohn (44:54):
Right, right, great points, great points.
So awesome man.
Thank you, abraham, for takingthe time to answer all these
questions.
I feel like private moneylending is just such a large
topic to cover, so I wanted tomake sure that we got the
majority of the questionsanswered here today.
That way, newly, investors havea better understanding of what
to expect and what questions toask.
(45:14):
With that being said, I want tomake sure that we're not
leaving any questions unansweredhere today.
Is there anything else wedidn't cover here today that
newcomers should know, or anyspecific concerns that you think
we should cover today?
Abraham Gray (45:26):
I mean, there's a million things we could talk
about?
Joseph Marohn (45:28):
I mean, we covered the most important stuff
, you know.
Abraham Gray (45:31):
So I think the most important stuff is what
everyone should know and that'swhat we covered.
But obviously there's tons ofnuances on each little thing,
what they are, and you know.
Obviously if people havequestions about it, we'll answer
them all, or we can do anotherone another day for more
advanced.
But I mean I think anyone thatwants to get into it has enough
(45:51):
information now to know at leastwhat they should do and
shouldn't do and at leasthopefully be safe to where they
won't do anything stupid andlose money.
But you know, they can alwaysreach out to you, they can
always reach out to me.
Joseph Marohn (46:05):
And we, but you know they can always reach out
to you, they can always reachout to me and we can always give
them advice as well.
I think that's a great idea,man, because the purpose, like I
said in the beginning, like Iwanted this to be more towards,
you know, a beginner standpoint.
You know that's why a lot ofthese questions were like very
beginner questions.
But you know, as you said,private money lending, there's a
lot to it and I feel like maybe, maybe, we could do a part two
on this and get more detailedquestions answered.
That's a great idea.
Abraham Gray (46:26):
I mean just that second position loan are like we
could have hours ofconversations about the pluses,
minuses and risks.
And I'll add, just on secondposition we didn't really get
into it too much.
I thought a little bit just tounderstand why second position
is a lot more risky.
But also, if you foreclose andyou are in second position, you
(46:47):
have to really know who thefirst position person is.
You should be talking to them,you should know ahead of time,
you should know how much they'reowed, what their interest is.
You have to know all thesedifferent things or else you're
jumping in blind and you lose alot of money.
But second position is like awhole other story we've talked
for hours and hours about.
Joseph Marohn (47:04):
Right, we can probably do a whole topic and
discussion on that alone.
Yeah for sure, Perfect Abraham.
Where can people find you andare you still currently open to
funding deals?
Abraham Gray (47:15):
Yeah, I'm always funding deals.
I do Gator deals every day.
I'm funding the whole closesand EMD deals every single day,
every single week.
Pml I still do, but right nowI'm pretty much where I want to
be with the money I have out.
But as I get money in, I letmoney out right away.
So yeah, 100%.
(47:36):
If you want to reach me,obviously on Facebook, abraham
Gray.
On Instagram it's Abraham GrayOfficial.
I have a YouTube channel that Ihave for almost a year and a
half AbrahamGray G-R-A-Y YouTube.
I answer all my emails, answerall my messages on Facebook and
everything else.
So if you have any questions,yeah, just reach out to me and
we'll answer every question.
Joseph Marohn (47:57):
Awesome.
Well, make sure to plug yourYouTube handle on the video here
.
That way, people can reach outto you and check out your stuff,
man, because I've been watchingyour content, man.
It's very beneficial.
Well, abraham, it's been anhonor to have you on the show.
You're an absolute monster inthis real estate game.
We're all hoping to reach alevel that you've already
succeeded at, and I wish younothing but continued success,
(48:20):
brother.
Abraham Gray (48:21):
Yeah, you too.
Thanks for having me.
Joseph Marohn (48:23):
I hope everyone gained a ton of knowledge from
Abraham Gray today.
Make sure you guys take asecond to like, subscribe and
drop a comment down below so wecan reach as many people as
possible.
I think you guys are going tofind a ton of value from this
episode and I want to make sureit reaches as many people as
possible.
Also, stay tuned for my nextepisode, where we'll be bringing
(48:44):
on a powerful speaker by thename of Richie Matthews and
he'll be covering the topic ofrental arbitrage and how exactly
a subleasing model can work foryour business.
It's going to be a greatepisode.
Abraham Gray (48:56):
Thank you again, abraham have a good day, brother
, thank you.
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