Building Wealth: How to Leverage Cash-Out Refinancing with Eric Mitchell

Dylan Silver (00:00.824)
Hey folks, welcome back to the show. I’m your host, Dylan Silver, and today on the show I have Eric Mitchell out of San Diego, California. Eric is the author of the newly released book, The Why of Money, an introspective look at how to get out of your own way and finally earn what you deserve. Eric, welcome to the show.

Eric Mitchell (00:23.803)
Happy to be here, Dylan.

Dylan Silver (00:25.708)
I always start off at the top of the show by asking my guests really how they got into the real estate space.

Eric Mitchell (00:32.946)
I think I’m like most others, right? I fell into it. I’m on the lending side, right? I don’t think, I don’t know anybody who was eight years old growing up saying, I can’t wait to be a loan officer one day, right? And that’s not typically a childhood dream or fantasy. 1999 moved from Canada to the United States, fell into it, hit a good run, right? The timing, 1999 all the way to 2007 was a really good run.

did some reinventing 2008, nine and 10, and then did more reinventing 2011 and beyond. And currently Chief Revenue Officer for Client Direct Mortgage for about 150 loan officers nationwide right now.

Dylan Silver (01:14.54)
So are you doing traditional and hard money lending?

Eric Mitchell (01:20.306)
So the phrase hard money, right, I’m not a fan of that phrase. To me, it has a negative connotation. We do business purpose lending, right? So whether it be DSCR loans or fix and flips or ground up construction, lending to LLCs, yes, right? But hard money connotation, it’s like you’re going to a loan shark or something, right? Like, no, no, no, we’re an institutional lender.

Right. We lend to LLCs based on business purpose lending. Sure. Absolutely.

Dylan Silver (01:52.142)
Fixing flip-mounts. Yeah.

So, know, let’s get granular. Before we hopped on here, I said I’ve had some guests that don’t always love the granular, but I love the granular as a wholesaler and as a realtor in Dallas, new realtor and as a wholesaler. I think the career path, if you will, of a real estate entrepreneur, especially someone who does wholesale, is you’re kind of on the outside looking in your networking, then you’re doing a lot of a wholesale, then you might start to get a fix and flip, and then from there you might do short-term, mid-term, long-term, right?

And I think for most people the biggest jump and I’m experiencing this right now is going from doing the wholesale deals to then having a deed in your name or getting the money together to get that first deal together. As someone who is in the lending space would you say that there is maybe one way that you’ve seen is the most common way. Of course there’s no one size fits all but is it.

Wholesale to fix and flip or is it wholesale to short-term rental and and if so what have been the the predominant? Lending mechanisms that you’ve seen people use

Eric Mitchell (03:05.948)
So let’s, I mean, let’s first talk about wholesale, right? So you’re talking about A to B, B to C, simultaneous closed transactions. And so for those listeners, understanding the financial ins and outs of that is really important. Like having a lender that can handle and facilitate A to B, B to C simultaneous closings. Cause not, you know, most lenders can’t. And so there’s a hand.

Dylan Silver (03:10.242)
Yep.

Dylan Silver (03:29.528)
Well, let’s actually talk about that. So lending, I’m a wholesale, I’ve never used a lender in my wholesale transactions. Where does lending come in? Are you talking about transactional funding?

Eric Mitchell (03:38.002)
So the person that is you’re assigning your contract to, right? You’re getting a property and a contract, right? So you are the buyer of the property and then you’re assigning that contract, right? So A to B, B to C, right? And so most lenders, and maybe you’ve got a lender who you describe as hard money, right? they’re hard money lenders, so they’re fine with it. Yeah, but so I’m the N buyer, I’m the C buyer.

Dylan Silver (03:44.462)
Yeah.

Eric Mitchell (04:09.03)
buying this contract to buy this property and I have to go through a hard money lender and they’re charging me, know, 12 % interest or whatever is they’re charging me, right? And so not having to pay. And so maybe that’s the good clarity, right? Is why I’m not a fan of that, right? Like it’s a loan shark. Cause there are institutional lending strategies where you can do A to B, B to C with institutional money, not hard money. And so it’s far less expensive. So I’m, as you get to know me, I’m very frugal.

Dylan Silver (04:16.216)
I got you.

Eric Mitchell (04:38.928)
Right. I’m always looking for is there a less expensive way to do that? Because when you look at fix and flips, right, one of the biggest line items that they have is the debt cost. Right. Your daily interest. Yeah, like it’s a big number for most investors. And so how do you structure that so that it’s less? Like, I get a line of credit where I can use it, pay it off, use it, pay it off, use it, pay it off, but I don’t have to keep paying closing costs and all this other stuff. Right.

Dylan Silver (04:50.7)
Yep. Holding cause.

Dylan Silver (04:56.771)
Huge.

Eric Mitchell (05:08.306)
And so there’s a lot of other strategies we try and help investors with. so, so moving from wholesaling, right? Are you doing it and doing it well? And then you want to do your first deal. So, so typically, normally you’re looking about 10 % into the deal, right? So, so our normal structures will give you 90 % of acquisition and 100 % of rehab. And so if you’re buying a property for 200,000, that means you have to have $20,000 skin in the game and we then do the rest.

That’s our standard, pretty standard terms. Now, it depends on the property. It depends on your exit strategy. Is it a buy fix and sells or buy fix and hold? What’s the market rent? Is it a long-term rental? Is it a short-term rental? Right? Like there’s all these other factors that come into play. What I’m typically a fan of is get good at one thing. I’m a big believer in 2025 that the real money is in being a specialist.

Dylan Silver (05:54.808)
Sure.

Eric Mitchell (06:06.962)
not a generalist. It’s if you do one thing and you do it really well. And so you might say, well, I’ve got this modular builder who sells me modular homes for $200 a square foot. And so I know if I can sell homes in a market where I’m at $400 a square foot and I can buy the properties, right? I can tear them down, rebuild with modular. And it’s a, you know, I buy infill 50 by 150 lots and here’s our set floor plan. And I just keep doing the same thing overnight, right? That’s a specialist. You’re doing it.

Transact lots of transactions making lots of money, right? But if you’re going after deals one-offs, right? And you’re trying to figure out one, well then you’re gonna close one or two deals a year. That’s okay. You can make good money at that, right? But you’re capped because there’s no system in play, right? And so I’m a bigger fan of how do I put a system into this? How do I reduce my cost of money?

Dylan Silver (06:51.704)
Right.

Eric Mitchell (07:03.122)
What are the strategies that allow me to reduce my cost of holding properties? Because I’m just not a big fan of rushing construction. Like if you’re a rush, rush, rush, stuff gets missed. Now you’re opening yourself up to liability issues. It’s not worth it. A lot of times it’s not worth it when I see the litigation that happens. You end up losing way more money than what the profit was.

Dylan Silver (07:26.615)
I’m with you.

Dylan Silver (07:30.934)
I was just talking about this. have a business associate friend who I’ve done some deals with and he’s really a guy who is like, just go out and do it, just go do it, just go do it, just go do it. And that’s been very successful for him. But I’m very, very much a systems guy and the reason why I’m that way is because I’m hardwired that way. But also I’ve experienced the burn of going out and just doing it and then losing money.

And I’d rather, if I’m gonna lose money, I’d rather lose money and be able to track it versus lose money and be like, I just don’t know what happened to it because I was just doing it.

Eric Mitchell (08:07.558)
Yeah, mean, just do it, just do it. I mean, that’s great if you’ve got ADHD. I mean, okay, I understand it, right? I understand it, right? It’s not my strategy, right? I don’t like winging it, right? Like if you came to me and say, Eric, you know, we want to borrow money, right? And it was clear I was winging it, lending you money, right? How’s that feel doing business with me? Probably doesn’t feel very good.

Dylan Silver (08:12.91)
You

Eric Mitchell (08:33.68)
The same way if I’m a buyer of a property and I’m buying it from a rehabber who winged it, okay, what’s that inspection gonna look like?

Dylan Silver (08:40.238)
Yeah.

Yeah, who knows?

Eric Mitchell (08:46.386)
Yeah, and it just opens up liability. In the United States, and I have a bit of a unique perspective. was born and raised in Canada, moved to United States in 1999. And I was 31 at the time. So that tells you my age. Yeah, the beard is pretty white. It’s my first beard, by the way, but I didn’t realize. If I put on a few extra pounds, I could be a good Santa Claus. And so…

In Canada, up until the age of 31, I was involved in zero lawsuits. Zero. Never been sued, never had to sue anybody my entire 31 years in Canada. In the United States, I’m well over 20. What? I mean, I’ve never lost one. I’ve never lost one. But the amount of litigation that happens in United States, I saw a crazy statistic that the United States has 5 % of the world’s population, but 95 % of the world’s lawsuits.

Dylan Silver (09:20.835)
Yeah.

Dylan Silver (09:40.632)
Yeah, I believe it.

Eric Mitchell (09:42.18)
And so you have to understand that real estate has its advantages, right? There’s tax advantages, there’s revenue advantages, there’s appreciation advantages, there’s tons and tons of advantages. But you also have to protect yourself, right? Like what’s my upside and how do I protect my downside, right? And when someone I have an LLC or I have an umbrella policy or I have a, yeah, but that doesn’t stop you from getting sued.

Dylan Silver (10:08.974)
He doesn’t.

Eric Mitchell (10:10.61)
And so why do you want to do things? Why do you run your business in such a way where you’re opening yourself up to that? It’s not a good idea. It’s not a good business practice. Because you can make, oh, I made $50,000 here. I made $70,000 here. I made $30,000 here. And then you get a lawsuit for $400,000 because some child got sick in a house with mold because you didn’t check to see if there was mold in the house because you were in a rush. And that’s the stuff that can bankrupt you.

Dylan Silver (10:21.014)
I’m with-

Dylan Silver (10:40.299)
Absolutely.

Eric Mitchell (10:40.326)
And I see it all the time. it’s not, I’ve never heard of an investor going bankrupt. like, are you kidding me? Like, yeah, I mean, I’ll introduce you to quite a few. And so look, I’m all about the upside, right? And I’m not a doomsayer. I’m not saying go, don’t invest in real estate. No, it’s a great strategy. I’m saying do it right, do it well.

Dylan Silver (10:46.978)
Let me connect with the guy, yeah.

Dylan Silver (11:04.312)
Pivoting a bit here, Eric, for someone who may be looking to get their first construction loan, they have so many options, right? And now because of the technology that we have, there’s people who can do loans across state lines, right? You’re based in California, I’m based in Texas, but I’m sure all fit right. And so when people are new to this space and they’re looking at getting their first construction loan, I’ve heard lots of different…

Eric Mitchell (11:21.542)
Yeah, we landed all 50 states. Yeah.

Dylan Silver (11:32.418)
criteria, right? So you mentioned 10 % down, I’ve heard 20, I’ve heard 30 % down. I’ve also heard that you need to have like the permits that you’ve pulled from previous rehab as well. If I haven’t done a rehab, how am I going to have the permits? Right? And that, of course, credit comes into play in most of these cases, right? But then in some of these cases, it’s more about the deal. And so are there, of course, you’re going to have your own with your company, but are there general guidelines that people should

kind of ascribed to in the fix and flip loan space when they’re thinking about, what’s kind of industry standard?

Eric Mitchell (12:09.69)
So industry standard is there is no standard. That’s the industry standard, right? And so every investor has their guidelines, what they’re comfortable with based on their history. And so the way to think about borrowing money is the same way to think about buying life insurance, right? When somebody says, well, you know, what’s your rate for life insurance? I don’t know. Do you smoke? Are you a police officer? Do you jump out of airplanes on the weekends as a hobby? Are you a mountain climber? Like, what do mean, what’s my life? What’s my cost for life insurance? That’s not how this works.

And so the same thing applies to borrowing money with real estate. Is this your first time rehabbing a property? Your third time? Your third time in how many years? How much money did you make on the last two deals? What are those addresses? All of those things reduce risk. So you get better terms. It’s not a matter of can you qualify, it’s at what cost. We’ll do 100 % financing.

100 % of acquisition and 100 % of your rehab costs and or construction costs for a first timer. Okay, but wait a second, what’s your credit score? What’s your net worth? Do you have a steady job? Right? Cause then people are, why I’m unemployed and I want, no, no, no, no, no. Okay. No, that’s not how this works. And so we look at what we call the four C’s, right? So cash, credit, capacity, collateral, cash is your net worth.

Credit is your credit history, capacity is how you’re make the payments or what’s your exit strategy, and collateral is what are you buying and or rehabbing and or building. And if you’re doing new construction, then there’s four documents we wanna see upfront, and that’s your plans, specs, elevations, and construction statement. And so if you’re saying, why do I have floor plans? Okay, well then how do I know what I’m lending you money for? How do I lend you money when you don’t even know what you’re building?

Dylan Silver (14:06.86)
Yeah.

Eric Mitchell (14:08.272)
Right? Well, we don’t have a city permit yet. Well, how long is it? I can’t lend you money and then sit and wait for a lending permit for five months or a billing permit for five months. Right? Like that doesn’t work. And so knowing that you’re going to buy this property, but you don’t have a permit, right? That’s a problem. And so you might have to enter the contract with a seller that you’re doing a four month closing and you can only close once you get the city permit.

Dylan Silver (14:39.468)
So for you, city permit is a must have. If people are gonna go into these deals, like let’s say they’re the B to C portion of this wholesale deal, right, and they’re buying a deal from a wholesaler, but they know that they wanna use hard money lending, they really gotta have that permit in place for that property before they go under contract.

Eric Mitchell (14:59.474)
You can buy the property, right? Look, I’ll give you, if you want to make a down payment on the property and just sit there on the property and wait for your city permit, right? That’s not a good strategy, right? Because now you’re paying interest every day. And here we go. Here’s your cost of funds in the deal, and that’s going to erode all of your profit. And so you’re far better off structuring the deal where you’ve got a four month close because the property is in

disrepair, it’s abandoned or it’s, you know, boarded up, whatever, and, and just make a deal with a seller. But that’ll be less expensive to you than sitting on a mortgage, you know, making payments every month on a property waiting for a city permit. Like I’ve got a client right now. And it’s a, it’s a, they’re all they’re doing is adding an ADU on in their backyard. And we’re nine months waiting for the city permit. Right? You know,

Dylan Silver (15:31.96)
Mm-hmm.

Eric Mitchell (15:57.298)
Good thing we didn’t close on the mortgage yet. They’d have been paying mortgage payments for nine months for no reason.

Dylan Silver (16:01.048)
Yeah.

Dylan Silver (16:06.092)
Now, when I think of the four month idea, right, getting the permit, pushing out the clothes, as someone who’s dealt with lot of distress sellers, financial, emotional, lots of issues, if they have equity in the home, my thinking is, well, if it’s gonna be four months, that’s 120 days, I might as well list it, and I’ll get more money for it than I will if I sell it as a cash offer. It’s gonna be four months either way.

Eric Mitchell (16:34.46)
So in a perfect world, would you agree that a buyer of a property that’s going to be a primary residence will pay more than a buyer of a property that’s an investment?

because there’s an emotional reason to buy that property now, right? But what I would structure it as is sell the property to an end consumer buyer and allow them to take out a mortgage that includes all of the renovation needed or the construction needed. Now all that is in the consumer’s name and we’ll lend them, because if it’s a primary residence, I’ll give you 100 % of everything.

Right? And now they get to make the house the way they want. They get to pick out the flooring and the cabinets and I want the kitchen to look like this and I’m like, great, do you? But now it’s all in their name, not in your name.

Dylan Silver (17:33.74)
feel like I just learned a real estate strategy here from from having this brief conversation because in all the conversations that I’ve had with real estate entrepreneurs and investors, flippers, wholesalers, so on and so forth. I’ve never heard the idea of bringing a distressed property to someone who’s looking for their home for themselves or family, right. And so I’m thinking about well, I’ve never really even heard of people taking out a construction loan.

Eric Mitchell (17:54.14)
Come here, guys. Yeah, yeah.

Dylan Silver (18:03.406)
on a deal unless they’re an investor for it. But it has to happen. And what if I made that more common, right? So I’m just kind of prototyping out this, this strategy in my head. I don’t know how much you’ve seen this happen. But would this work better for a deal that’s on market? Because they’re going to have market exposure with this work better for a deal that’s off market.

Eric Mitchell (18:23.12)
So, sure. No, either. So let’s just say, take an average deal, right? It’s a three bedroom, two and a half bath house with a two car garage, right? And it’s in distress, right? It’s, it was a hoarder, it’s boarded up, it’s something, whatever. There’s something wrong with the property. And you’ve got a builder who gives you plan, specs and elevations of what this house could look like. Right, here’s plan, specs and elevations.

those images, put them in the multiple listings, put it on the listing saying here’s the house as is, here’s what the house could look like, we’ll lend you all the money to make the house look like this and you get to pick out everything.

Dylan Silver (19:13.166)
That’s a deadly strategy. That’s lethal right there.

Eric Mitchell (19:17.264)
Now if I’m a consumer and you’re telling me I get to make this house look the way I want it to look. I get to pick out the flooring, I get to pick out the kitchen cabinets, I get to pick out the appliances, I get to tell you how I want the bathrooms to look. Yes. And you’re gonna lend me all the money to do this? Yes. Why wouldn’t I want

Dylan Silver (19:38.914)
Man, this is a, I gotta do this in my own business. You just dropped a gold nugget on me. Have you seen people doing this strategy or did we just make this up on our own?

Eric Mitchell (19:48.402)
No, no, see. So my there’s a thing that I learned about myself about 25 years ago that I have somewhat of a photographic memory for matrices and guidelines and Excel spreadsheets and things. It’s weird. People ask me how I do it. I don’t know. My brain just takes pictures and I have recall. And so I’m able to read guidelines, thousands and thousands of pages of guidelines and recall who does what.

So on my website, I post all these images of guidelines that people think are impossible. People tell me all the time, are, you can’t do that. It’s like, yeah, I can. Like here’s the guidelines. And so like one example, one of my favorite examples is, so let’s say you’re an investor and you’re buying houses on the courthouse steps, right? Tax, whatever. And courthouse steps, it’s cash. There is no financing. You have to go in, you’re walking in with a cashier’s check.

Cash, right? Okay, so you just bought a $300,000 property for $180,000, right? Cause you cash on the ground house. But 99.999 % of all lenders in America are gonna say you paid $180,000 therefore the value is $180,000. Not what some appraiser says, right? Until you’ve owned the house, the property at least 12 months.

Once you own the property 12 months and a day, then most investors, most lenders will say, now we’ll use the appraised value. Okay? Well, I’ll use the appraised value one day after ownership. Meaning, if that house is really worth 300,000 and an appraiser says it’s worth 300,000, I’ll give you the $180,000 cash, as a cash out refinance mortgage. Here’s your cash back. And you got a mortgage on the property. I’ll take the appraised value the next day.

And so like that’s one example of 99 % of courthouse buyers have no idea that that even exists. So they’re just sitting there and they’re stuck not buying the next property because they can’t get their cash out for 12 months.

Dylan Silver (21:58.766)
So I wanna break this down granular because I’m new to the idea of, of course, BRRR, cash out refinance, I’m familiar with it, but as far as what people can do with the money, I’ve been under the impression that it’s limited to kind of what their rate that they’re paying on the money is, right? So if someone is getting a cash out refinance on a property that they’re buying on the courthouse steps,

what is the next steps that they could do and can they use that to go find another property or do they have to kind of do a higher return like a fix and flip type deal with that model?

Eric Mitchell (22:39.613)
So let’s just say you bought the house and the house needs a little bit of repair, right? Usually there’s some kind of repair, but the value, lenders are gonna see the value as 180,000, your purchase price, plus whatever you put into the property. So let’s say you put $20,000 in to make it pretty. Therefore the value is 200,000. Therefore you can do a cash RFI to 150,000, typically, right? But you’re still out, but you spent 200.

Dylan Silver (22:44.152)
Okay.

Eric Mitchell (23:08.4)
I can cash out 150, but I’m still $50,000 less cash in my bank account. Well, I’m not in the hole, it’s equity in real estate. It’s just not cash in the bank.

Dylan Silver (23:13.452)
in the hole. Right.

Dylan Silver (23:19.02)
Yeah.

Eric Mitchell (23:22.918)
Right? And I need cash in the bank to go buy my next property at the Card House Steps. So I want the whole 200 out. I don’t want 150 out. Well, I’m saying the value is 300. I’ll use the appraised value, not your purchase price, the next day. I’ll give you all of your money back. Now go keep doing it. Just buy the next one, buy the next one, buy the next one, buy the next one.

Dylan Silver (23:43.594)
And they can do that. They could do that. Until, yeah, they could keep going.

Eric Mitchell (23:46.396)
Keep going. Yeah.

I mean, we have to have a licensed qualified appraiser tell us that the value is 300,000, right? We’re not fudging appraisals, but if it’s really that, then good for you. Like why should you be punished? And that comes from me just being able to read the guidelines and recall like, no, no, hold on, no. I know everybody says this, but we have a strategy where that’s not required. And so that’s one of my favorite.

Dylan Silver (24:14.828)
Unbelievable.

Eric Mitchell (24:17.266)
things to be able to, because most courthouse steps or cash buyers, they’re convinced, right? Cause they’ve been told by everybody, well, that’s not possible. I agree, 99.9 % of lenders, you’re right. It’s not possible, but we do it.

Dylan Silver (24:33.062)
Eric, we are coming up on time here, but I’ve learned now two strategies which, as you alluded to, kind of make the previously impossible seem possible. Where can folks go to get a hold of you?

Eric Mitchell (24:47.664)
eric-mitchell.com, E-R-I-C hyphen M-I-T-C-H-E-L-L.com. All my information’s there.

Dylan Silver (24:56.48)
Eric, thank you so much for coming on the show here today.

Eric Mitchell (25:01.712)
Happy to be here, man. It was fun.