Welcome to the discount property investor podcast, where we show you how to buy real estate at a discount, so you can create wealth over time and income today. Our mission is to share what we have learned from the experience of others and help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate the discount investor way.

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Mike:  Welcome back Discount property investors, your host Mike Slane, David Dodge, and we are joined today with a very special guest Dan Gibson. Thanks for joining us Dan.

Dan:  Appreciate you guys having me.

David:  Absolutely. Thanks for coming man.

Mike:  So Dan is kind of whom we consider -- the expert on private funding and mobile home park investing. So definitely not our area of expertise and one of our missions was to share -- knowledge of other people, so we brought Dan in and really excited to have him today.

David:  Yeah thanks for coming Dan.

Dan:  Sure it will be fun.

David:  Dan has got two very specific niches, like Mike just mentioned. Private funding which we are going to get into here in just a few minutes and some really awesome -- strategies that he and his company uses to raise funds, and also he is a mobile home park investor. So -- we are really excited to learn more about both of those topics. Don't forget guys; check out discountpropertyinvestor.com, and the freewholesalecourse.com. We have mentioned in some previous episodes about the course, it is 100% free. We put it together for you guys to help teach you the basics of wholesaling and get you out to do deals immediately, so check that out. We are very excited about the course and we are still adding free content to it daily. Let's jump right in, Dan private funds, what are they?

Dan:  Well, I mean -- private funds can be a lot of different things but -- in my mind private funds are basically anything -- any source of money that is not from a traditional source, it's not from a bank, not from a hard money lender even -- maybe some people would consider hard money lenders as private funds, but they are kind of their own niche.

Most people when they think of private funds it's -- mom or dad or grandma. A lot of times it is but anything that -- you can find out there from an individual is how I like to describe it.

David:  Ok, very good. Why would we use private funds? What is the benefit of it?

Dan:  So our business is really driven by private funds. It is really what took off our business really and it all starts with flexibility. We have a lot of say in when the money gets paid back, the terms in which it gets paid back. Obviously you have to make your terms a little attractive to pitch someone to invest with you but -- a lot of the times people are ok with it, you can show a track record that you have made money and you have made some decent returns for your current investors, it is a pretty easy pitch so. We love it with the flexibility as you guys will agree -- banks their regulations are getting stricter.

David:  Yeah, absolutely.

Dan:  And really they are a pain to deal with.

David:  Banks have their advantages. If you can prove to the banks that you are worthy of them lending to you, you can get your money cheap, but it's hard.

Dan:  It is hard, but the magic thing with the banks are W2 income. They love W2 income.

David:  They love it.

Dan:  We don’t have W2 income so -- whether or not we are making twice as much as someone with a W2 income, banks see it as  -- oh well we have to show up to work every day or we are not making money. We are out own business, we are our own ---

David:  Absolutely.

Dan:  So they just don’t like that and try applying for a house, just through a basic [ inaudible] mortgage -- you would think it would be easy, my wife and I are going through it right now, it is a just a pain in the butt. She has got the typically W2 income and banks love her, they look at me and they are like -- you have this investment property, that's great but you are not getting a pay check every month.

David:  -- give them a W2 and a couple of print out of bank statements, but with you -- a dictionary thickness of paperwork and they want more and they want more and want more, it never ends.

Dan:  Yep, I mean -- middle of the year profit losses for small entities, it’s like -- who is doing that?

David:  Who is even reading this stuff?

Dan:  I have six entities, what am I going to do, middle year profit losses for all of them?

David:  I'm with ya man.

Dan:  So -- that is why and that is what changed our business a few years ago when we -- when we went to private funds. We started with our first small rehab project, we had cash to close on it, we were looking to raise 30 grand I think and -- asked a couple of people and were like, hey you know we got this property, it's pretty safe, we will be in and out in a few months, 30 grand -- how does 15% of -- I think it was 20% first deal. It was such a low amount we were like -- we got to give these people --

David:  Make it worth their while.

Dan:  Exactly, so -- I think it was 20 and we were like, how does 20% sound? And they were like, yeah sure we will give you a try, and it worked and then from that first 30 grand we raised -- going back three and a half years ago, we are up to 700,000 in private funds that we use.

David:  Man that is just awesome.

Mike:  That is awesome.

David:  That is a ton of money; you could do a lot of business with that.

Mike:  So, I want to keep it super basic though, so private funds you are borrowing from somebody else which is -- you are using their money. So Dan gave a great example, their very first deal that they used on was $30,000 so again it is nothing to really necessarily be scared of. If you are asking -- your grandma, your mother, your father whoever it is to help you out, you’re not necessarily asking for $700,000. You are asking to help fund you on this one project.

David:  Yeah, keep it basic guys. In the beginning you don’t need to go out and ask for that big chunk of change like Mike just mentioned. Some deals, especially in our market, we can get a house for 10, 15, 20k, do a small flip on it. Start small; keep it basic, very good point Mike.

Dan:  I would probably recommend, that is how I would recommend starting, starting small. Start with -- small house like that. You don’t have to use it for rehabbing, you can use it for rental, you can use it for wholesaling even. So -- there is a lot of ways; it all starts with how you buy it right?

David:  Absolutely. Let’s dive in for one second about -- that first deal, was a few years ago, I don’t want to elaborate too much on it. I want to test your memory here, that’s right. So you guys borrowed 30 grand, what was it for? Was it for a single family rehab?

Dan:  It was a single family rehab yes, in a small little town in Illinois, across the river. We -- I think it was --

David:  How many people lent? Just one?

Dan:  It was three people, three people gave 10,000 each. We told them -- we told them 20% return and we told them --

David:  Did you have a term on that return?

Dan:  We did, we limited it to a year. We thought we could do it in three months, we were like, hey first one, let’s not get cocky, let’s just give ourselves a year to be safe. I think we had, we bought the property with our own cash for 20 grand. We already had the property that was obviously out contribution which private investors like to see.

David:  Absolutely, put some skin in the game.

Dan:  And yeah, small little three bed, two baths -- all in for I think for about 60. We -- we ended up selling it for like 90.

Mike:  30k, awesome.

Dan:  I thought it was the greatest thing in the world.

David:  Probably pulled in 20, 25 after closing.

Dan:  Yeah we definitely netted over 20 and -- paid our investors back, and I think it took us seven months -- so I am glad -- give yourself some extra time.

David:  Yeah because you estimated two or three?

Dan:  Yeah, I was like this will be three months no big deal, it was seven. So -- gave them the money back and didn’t even really know that I was going to do this full time.

David:  Good test.

Dan:  One of the investors just simply said ok, ---

David:  Once you get that ball rolling and you start paying those dividends and getting their money back, especially when you can beat you expectations so -- that is another point I want to elaborate on is -- give yourself enough time. Don’t be overly optimistic when it comes to funding and getting money lent to you. Pay them back and they are going to want to keep that money going, maybe give you more.

Dan:  Absolutely and I think as long as you go into it knowing -- no matter what, as long as my investors get paid what I told them. I think that’s the more important -- credibility. We wouldn’t be where we were at today if we cut corners and -- your reputation is worth it to figure out a way to make sure that investor pays back. Especially if it is your first or second deal.

David:  Absolutely.

Mike:  Most of your investors -- its people that you know, or your partners know, is that fair?

David:  Friends and family?

Dan:  The first 30,000 it was two family friends and one family member. People I am going to see all the time, people I am going to see at Christmas and thanksgiving so make sure.

Mike:  You are gambling business to do business and to do it again. You want to help these people out to because they are helping you out.

David:  I want to try and keep it very basic, but I do have to ask the question, whenever you got money from three different individuals, was there a ton of paperwork involved? Let’s keep it basic for the newbies out there, the person that is saying, hey my grandma has a big [00:11:32.18 - inaudible] or my parents do or my buddy, and I want to see if they are interested in partnering with me to do some of these deals, how would you coach or teach them on -- setting that up?

Dan:  I would say, you will be tempted to not do any type of paperwork, because most of the time they are family and friends and they trust you. They really don’t know anything about real estate, they trust you. They probably don’t need something in writing. I encourage everyone to put something in writing, so we simply wrote up, just a little one page contract that could be used, that could be filed as a second mortgage if --

David:  Kind of like a mechanics lean.

Dan:  That's exactly what it is.

David:  But it was never even recorded.

Dan:  Never recorded but we had the paper, we all signed it, gave it to all the investors so --

David:  That's beautiful.

Mike:  That's important though to.

David:  It is important but I guess the point I really wanted to emphasise here was – it’s good to have something in writing but don’t ever think it folks, keep it simple. One page, little bit of information saying, we are going into this as a partnership, you are lending me this, I am going to return this with some interest in this amount of time. I am going to sign and date it and so are you and that’s it.

Dan:  That's it. And that's what it was. Give them each a copy and they can use it if necessary; hopefully they don’t have to use it. Now today with the 700 it is a little bit more complicated.

Mike:  That is a whole different story. Hopefully there is more than one piece of paper.

Dan:  You bring in the government agencies so I think legally we are an active private equity fund I believe is the legal definition. We are SCC compliant so, lot more paperwork, consult your attorneys.

Mike:  It is good to get it out there. Dan, we were using his very first deal as an example. But like I said, they are experts at this, they are doing it right and that’s what’s really important. Once you get into that I think the question is, is it hard? When you set up the -- your fund --

David:  Let's talk about that. Now you have done a couple of these smaller ones where you got 30 and a little bit more I’m sure for some individual deals. You guys have taken this to the next level and you have filed paperwork, and you have fund, is that correct? Am I wording that right? What is it called?

Dan:  Our fund is called Arsenal Capital fund. We have kind of stuck with the arsenal family of -- kind of holding everything, our entities.

David:  But is there a name for that actual type of fund? People throw about the term PPM. What does that even mean?

Dan:  Private placement memorandum I believe is the legal document that your attorney will draw up, and that is what is filed with the SCC. Inside all of that explains, I think its somewhere between 20 and 40 page document depending on how -- lays out exactly what you are going to do. I am going to use money for this, I am going to attempt to do this, these are the returns we hope to achieve -- not guaranteeing anything and that -- yeah the PPM the private placement memorandum -- that’s --

David:  That's great man, let’s walk through this real quick, I want to try and keep this as simple as possible. So you go talk to an attorney and you get the paperwork put together, which lays out what you are wanting to do, how, with who, when and where I would imagine.

Dan:  Yep.

David:  You file that with the SCC and the state or just the SCC?

Dan:  Both.

David:  Both ok.

Dan:  Federally and local state attorney, the attorney will do all that for ya.

David:  How long does that process take from the time that you start working with the attorney -- every attorney is going to be a little different, every state is going to be a little different, but on average is it weeks or months or?

Dan:  It’s weeks.

David:  Not a crazy amount of time.

Dan:  No. Especially if an attorney has done it before, they have that relationship at the local SCC and that is obviously going to be your bottleneck is getting the federal and state governments officially sign off on it. But waiting on that shouldn’t stop you from talking to people and raising funds and --

David:  Let’s keep moving here, this is perfect here I love it, great information. So you get the paperwork filed, a couple of weeks go by and you get the green light ok. What is the next step? Obviously you are going to be pitching and recruiting investors throughout that process. You can’t actually receive any funds I imagine?

Dan:  No you can’t receive funds yet -- you can’t receive commitments but -- wait till -- once the PPM is signed off on, there is one page in that back of it that basically says this is our disclosure, this is how much we are interested in investing and then once everything is signed, sealed -- then you can actually collect the money but -- yeah you can start pitching --

David:  I would imagine the beauty of the PPM is that you can kind of design it how you want, and anybody that puts one out there can create their own terms and time frames.

Dan:  Exactly, it's not different -- you can write it for anything it doesn’t have to be for real estate.

David:  So really what it allows you to do is it allows you to pool. That's pretty much it, if you want to simplify it the most. Instead of me going to Mike to borrow for house A, and then me going to Dan to borrow for house B, I can say, hey Mike and Dan, let’s put that money into a fund, then I can draw from that fund to buy house A and B on my own time, do my own stuff with it. Is there a ton of ongoing recording or support, I guess that’s the wrong word --

Mike:  Paperwork.

David:  Paperwork yeah that --

Mike:  What you are doing behind the scenes.

David:  How does that work?

Dan:  Other than your normal third party accountant signing off on everything. We just run it through quick books like our other businesses. So yeah there really is no ongoing, there are yearly renewals, yearly filing.

David:  A little bit of maintenance but it’s not bad though.

Dan:  No, it’s getting it set up -- it’s not hard. You are going to have to use an attorney at some point. So once they are done with their stuff -- we want you to be focused on raising the funds and the deals itself.

David:  Cool, I don’t want to get into too much detail --

Mike:  Talking about raising funds then -- is it hard to come up with that much money? A lot of people -- 700,000 that’s a lot of money. I don’t have a grandma with several hundred thousand dollars so --how do you go about that?

Dan:  The story I tell it’s perfect. You start with thirty; probably a lot of people can find 30. Friends and family, and then -- I think our process was, we wrote down family and friends who we liked spending time with who we spend time with out of business and --

David:  So these people knew that you guys were in real estate?

Dan:  They knew we were in real estate, had been for a few years and -- at least showed some level of interest. Like your friends, hey what are you up to? What you been doing? What’s going on? How’s the real estate business? And I think between my dad and I we came up with maybe a list of 100 people that we would consider friends and I think --

David:  You got a lot more friends than me.

Dan:  That's my dad -- my list was smaller. We actually had 100 carved out about 20, these are the closest that know our business and know that we are in business and -- we just sent them a one page executive summary, which is part of the PPM.

David:  I love the page -- it makes it so easy. Everyone always wants to over complicate everything in business. Whenever I work with one page, people love it. This is another example of how you can keep it simple.

Dan:  If you open up a PDF and you see its 20 pages you are just like, I am not going to read this.

David:  Not even going to start reading it, exactly.

Dan:  Give me the highlights.

David:  Exactly, that’s awesome.

Dan:  So one page, sent it out to them -- and I would say, it wasn’t hard and I think the important thing is you don’t know who has money.

David:  That is so true.

Dan:  There are some people that I thought for sure would invest; I thought oh they have money and they didn’t. They were like -- I want to wait a little bit.

David:  I want you to prove it to me first.

Dan:  Then you have -- we actually sent it to one of my aunts and uncles in town, in St Louis and thinking, they might be interested, they were 50:50. They --

David:  50:50 on the minimum investment of 10k?

Dan:  Right, minimum investment of 10k. They weren’t interested, but my little cousin, my younger cousin who is in college has -- had like 10 thousand or something in savings from his miscellaneous jobs and he read it and called me and was like, hey -- this thing has just been sitting here, I am interested. My little cousin -- he was a freshman in college. He has been an investor for the last three years and I have been sending him checks throughout college. So you never know who has money. Obviously my little cousin wasn’t on the list, he gets the letter, he sees it from his parents -- yeah I think some people will want to wait it out and see how it goes the first couple of years. I will say at this point when you have shown a track record for a few years, we have a waiting list essentially. How much money do we want to take on with our time and we are responsible for?

David:  That's another really good point, I don’t want to interrupt you Dan, but I do want to emphasise something again. Don’t set your goal for the first fund to be 700 or 900 or even a million dollars. Just get out there and get going, even if you can only raise 30-50k.

Dan:  Allows you to get a deal.

David:  Allows you to do a deal but then you can start building a track record and that also goes for banks to.

Dan:  Sure.

David:  Get that track record, do a couple of deals, borrow, pay back, borrow, pay back. Pay some interest and then -- like Dan says, he has a waiting list.

Dan:  We didn't go from 30 to 700; we went from 30 to 90 --

David:  My next question, I don’t want to get too much into your personal details and business because it’s not my business but -- you didn’t go from 30 to 700. You stepped it up.

Dan:  30 to 90 to 300 to 700.

David:  That's awesome.

Mike:  So -- what’s really cool though in my brain is like wooah. What Dan solved is one of the hardest things in real estate. You are always looking for your next deal, or you are looking for more money to do your next deal. So if you just heard that he said. He said they have got a waiting list of money to utilize. So he doesn’t have that problem in real estate anymore which is awesome. Pretty awesome.

David:  That is amazing.

Dan:  It allows you to kind of tie this into the wholesaling, what you guys do and it allows us to focus on what we want to focus on. So my brother and I had a quick stint in wholesaling, we weren’t that good at it because we didn’t market, we just thought oh we -- we did a handful of deals and it’s great, its quick cash and I love it. But -- that wasn’t what we were good at.

David:  It's a lot of work.

Dan:  It is and we didn’t have the time and we didn’t want to commit to it so we made the decision as a business to say hey, why don’t we focus on just buying from wholesalers, they are doing all the work, they are getting us deals, they are making money, we are making money so why -- let’s not -- you don’t have to do everything. You don’t have to wholesale, rehab, own rentals --

David:  It's hard to do everything, its better --

Mike:  I think in a previous episode we mentioned our other partner Bill mentioned that to. There are a lot of ways to make money, you find what works for you and do that. That is exactly what Dan is saying --

Dan:  Yeah exactly. The way I look at it is -- you guys might look at it different but, I am either spending money to market to home owners, to sellers or -- I am spending money to pay you guys to just send me the leads. My time is a lot more efficient letting you guys make your money, you guys doing what you’re good at and let me focus on my business.

David:  Let’s talk about the security that the investors would have. So -- whenever you did your first deal and you had borrowed 30 thousand from three different individuals, you had three individual -- agreements.

Dan:  Notes.

David:  Notes, but they were simple just one page agreements and -- it was -- seems a bit like a handshake deal, because nothing was recorded even though you had paperwork.

Dan:  Correct.

David:  And -- so the interest they had was kind of, not only in the property but -- you as an individual saying, hey I got this -- but whenever you have a fund it kind of changes a little bit because -- again, not trying to get too personal but you guys probably have 30 or 40 investors?

Dan:  Oh yeah -- mid-twenties I believe is the most recent number.

David:  So you have a lot of people pooling which is great, it allows you to do more and make more --

Dan:  Right.

David:  Let's talk about the security just briefly.

Dan:  Yeah, I mean really it doesn’t change a whole lot. All the investors are part of the cooperation, the fund.

David:  In this case the fund is the one that has -- the ability to record leans and mortgages?

Dan:  The fund is a lender specifically to our rehab company.

David:  Gotcha.

Dan:  The only -- the fund can only lend to our rehab company per our private placement memorandum.

David:  What a great agreement.

Dan:  Obviously it allows us to partner with -- if you guys have a great deal and --

David:  You guys are the managers of the fund.

Dan:  At our discretion we can partner. But the fund itself, that is a separate entity that can -- that only lends money to our rehab company and -- they would then -- they have the notes completely on all of that, they would have the leans on everything.

David:  So it doesn’t change much, it just has to go through the fund, but that is the reason you have a fund so you can pool and get more. So it’s very basic really. People try to complicate it, I do.

Dan:  It seems complicated but it’s really the exact same thing as -- I think now rather than one page it’s a few pages. It essentially when it boils down to the same thing. The fund lends to the rehab company and has position on -- there are no bank loans on any of these houses, we are buying them with cash from the funds so.

David:  That's great.

Dan:  And they have first position on every --

David:  So really they are not having to worry about having to [00:27:10.26 - inaudible] and deal with more attorneys and paperwork and banks. It’s a cash deal, and that’s the beauty of having a large fund is that you don’t need to complicate it. You can go in with cash, rehab with cash, just simplifies it.

Dan:  Going back to why you use private funds it -- that was the main thing. You guys get a deal, you shoot it out to your buyers list -- how much time do I have? I have to come with cash in the bank to say I want this deal and I can close in ten days. I can’t say hey i want this deal, let me go to the bank and --

David:  Make sure I have enough approval and --

Dan:  Will you guys wait 45 days --

Mike:  And then the bank still says no because they don’t like the double closings.

David:  Something strange in there.

Dan:  That's a whole other reason.

David:  I love it. Let’s talk about how someone would get started using private money? Obviously a fund is an awesome way to use private money. But to the newbie investor it’s a little bit higher level. So we encourage everybody to learn how to do this in time. But for the guy that is just starting wholesaling and he has taken our free wholesale course and he is learning how to do marketing. Private money is still an option for him. So how would you recommend the newbie investor to get started using private money?

Dan:  Yeah I think if you are out there and you are in the business, you just started your wholesaling -- everyone -- I know that wholesalers come across a great deal and there is just too much money on the table to wholesale it -- or there is too much money on the table not to rehab it. This is a great deal, we can make three times as much if we rehab it. I think that is just a natural part of the business, you guys would know than I would. But that is a very common -- a lot of wholesalers also do some rehabs. So I think right there that is where the private funds can come in. Obviously like we said earlier, I encourage people to start small.

David:  Would you agree that if you come across a great deal the funds will appear?

Dan:  Oh yeah.

David:  I mean all you have to do is present that to -- other investors, friends family. If the deal is good, raising the money is usually the easiest part, it’s just finding the deal.

Dan:  Everything is in finding the deal.

David:  Everything.

Dan:  Money will find you. It seems -- it is hard to wrap your mind around sometimes because you sit down and yourself -- I remember when I first started -- really started real estate investing -- actively, daily, three and a half four years ago. If I only had money I knew I would do deals -- honestly that is just a lazy --

David:  I love it, it's so true. If only I had money I could do deals. It's the opposite. If only I had deals, then you have the money, it comes.

Dan:  Yep.

David:  Finding the money is usually the easiest part.

Dan:  You have multiple exit strategies if I want -- If I think it is a good rehab I buy it and -- hopefully first if it is my first deal partnering with someone, or getting someone like you guys, your opinion on it first. Would this being something your clients, your buyers would be interested in? If all that checks out and I say i want to do this myself -- ok maybe the rehab numbers, maybe they came in more than I thought they were. Ok, if you got a couple of wholesalers who signed on it, why not co-wholesale with them, work with them or -- maybe it is a good rental. You have multiple options and that is the exciting thing. If you find a good deal, there will be a way to make money.

Dave: I love it, I love it, Lets jump into the next topic.  The next topic is Mobile Home Parks.

Mike: Before we do that we are going to go ahead and wrap up this episode.  Dan joined us and we are going to split his interview up into two parts, both released at the same time. So be sure to continue listening to Dan and his info on Mobile Home Park Investing. This episode lets go ahead and wrap up with our quote, “Money is usually attracted, not pursued”