How Real Estate Investors Use Leverage to Build Wealth Faster | Eric Mitchell

Eric Mitchell (00:00)
They had beautiful credit. Their tax returns were beautiful, everything was beautiful. And so I wrote them a pre-approval letter. They were gonna buy a two-million-dollar home, they’re gonna make a thirty percent down payment. Easy peasy. Here’s your pre-approval letter. It was one of the nicest files I’d ever seen. And they go out shopping, they get under escrow, they open escrow, I get the contract. So I package the file, submit it to the underwriter. One and a half days later I get an email: Loan is denied. Not suspended. Not, hey, we need something. No, no, loan denied. We don’t want the loan.

Joseph Crooms (02:00)
Hey everyone. Welcome to Investor Fuel Real Estate Pros Podcast. Today we have a unique person. He is real estate investor. He’s also dealing with… well he he’s got much experience. And by the way, I’m your host Joseph Crooms. Today I’m joined by someone I’ve been looking forward to chatting with. His name… I call him Eric Mitchell, and he’s gonna talk a little bit more about his niche. So hey Eric, glad to have you here. Say hello to everybody.

Eric Mitchell (02:29)
Hey everybody, Eric Mitchell. I’m Chief Revenue Officer with Nexa Lending, also published author of the book The Why of Money, trying to help people build wealth faster by understanding the power of leverage.

Joseph Crooms (02:40)
Thank you, Eric. I think our listeners are going to take something away from how you’re approaching business. So let’s dive right into it. So, first of all, just a general question: for people who may not be familiar with your world, give us the short version. What’s your main focus these days and what markets are you operating in?

Eric Mitchell (02:59)
So I’m a lender, but with a company the size of Nexa, I mean we’re in all fifty states plus Puerto Rico, plus we also lend in Mexico. For Americans wanting to buy vacation homes in Mexico, we do those mortgages as well. We’re rolling out business lending as we speak, so we’re gonna start doing equipment leasing, receivables financing, SBA loans, etc., on top of that. But we have a very heavy focus on helping real estate investors leverage what they’re doing. You know, if you’re a rookie investor, you’re doing your first deal, we show you how to leverage based on your first deal. If you’re an experienced investor, you’re doing your fifth, tenth, fifteenth deal, you get much better leverage because you’ve already established that you know what you’re doing. So there’s a lot more trust in that process, all the way to a hundred percent financing. You know, we’ve got many of our clients that are getting 100% of acquisition, 100% of renovation, 100% of new construction, you know, once they’ve established that trust factor. So, you know, you can grow pretty fast when you don’t need to inject your own capital.

Joseph Crooms (04:01)
Makes sense. Eric, so let me ask you this question: how do you conversate with a new investor and one that’s becoming more seasoned about to break into that that that that last area you just spoke about?

Eric Mitchell (04:16)
I mean, a new investor, it’s all… it’s the same as like being a first-time home buyer, right? There “I don’t know what I don’t know.” And so there’s a a certain amount of education that’s needed. You know, why are we asking for a personal financial statement? Why are we asking for a Schedule of Real Estate Owned, like do you own a primary residence or not? Why are we asking for certain documents? So there’s a… it’s a slower pace when you’re dealing with a first-time investor, because just the amount of information they need to ingest. And then if you’ve got a seasoned investor, it’s how do you tweak or modify what they’re doing in such a way where they can leverage more, grow faster. And so helping them understand the power of of, you know, structuring their documents in a certain way where they can just replicate over and over. And so both require a different level of education, right? Different sets of education, different sets of information. But we try and help both as best we can.

Joseph Crooms (05:07)
Eric, as a Chief Officer of your company, you’re you’re responsible for training. But you also mentioned to me that building trust and asking questions… has that been difficult for you?

Eric Mitchell (05:20)
Yes, the hardest part of what we do is is, you know, “Hey Joseph, nice to meet you. Can I please have copies of your bank statements and I’m gonna pull your credit report and judge you.” You know, it’s very… it’s incredibly invasive. And so how do you build trust fast enough that that you can move quickly with someone that’s looking to take advantage of a certain opportunity that’s been presented, and building that trust quickly. So things like having online presence, where they can, you know, Google you and find you and watch videos and make sure that you’re you’re the real deal. Making sure that everything you have is encrypted so that their information is protected. You know, “Don’t email me your bank statements, email’s not secure.” You know, we have to send you an encrypted link, upload it into the encrypted environment. You know, and so there’s a lot of things that we need to put in place, systems we need to put in place to make sure that we build that trust quickly.

Joseph Crooms (06:59)
So I know for the new investor it can be shocking. So, Eric, show me how you were sorta relaxed, and what would you do?

Eric Mitchell (07:08)
So sometimes depending on depending the customer, if if I feel like the customer is amiable, right, ’cause I was I was raised in a small town, so I my language sometimes can go to the other side of the tracks real quick. Okay. And and so I try and watch that as best I can, but if I feel like the the client has, you know, got a good sense of humor and and they’re trying to look at this from a from a human standpoint, one of the things I say is… I if it’s a gentleman, “Have you ever had a proctology exam?”

Joseph Crooms (07:39)
Mm-hmm.

Eric Mitchell (07:40)
Well, this is gonna feel like that. And so I gotta I got you to know… you gotta know that this is gonna feel invasive and you’re gonna feel violated in some ways. And I’m sorry, I’m apologizing in advance, right? But I gotta… there’s no way I can lend you hundreds of thousands of dollars without knowing everything about everything. And so I need to hear the story of what you’re doing, why you’re doing it, you know, what your current situation is, know what you’re trying to get in or out of, but I need to know everything about everything, ’cause I’m gonna find it out either now or I’ll find it out later. Right, I’m gonna find it out. And so let’s just let’s just cut to the chase and figure out what is it that you need, and can I solve your… solve your pain?

Joseph Crooms (08:21)
Eric, has there ever been a time where someone was asking for two hundred thousand, they can only get one twenty-five? How do you bring back to reality?

Eric Mitchell (08:28)
Sure. Yeah, all the time. Well, sometimes you can… sometimes you can, sometimes you can’t, right? So it depends on like if it’s a primary residence or it’s an investment property. What we try and show is that if you’re buying an investment property, we’re here to to lend you money, but we’re also here to protect you, right? So if I’m… if I’m saying I can only lend you one twenty-five, I can’t lend you two hundred, maybe you shouldn’t buy the property, right? Like our due diligence is saying it doesn’t have that valuation, and and so we’re looking at it from a cash flow standpoint.

Right, so if I’m saying your loan has to be above… has to be one hundred twenty-five, it’s because the cash flow supports one hundred twenty-five. It does not support two hundred thousand. So why are you paying two hundred thousand for a property that only cash flows based on a valuation of one twenty-five? Like why are you overpaying? Now you might say, “Well, I’m overpaying because I’m gonna tear it down.” Right? “That property is zoned for a fourplex. I’m gonna tear that that junkety house down. I’m gonna build four brand new single family homes.” Well, you didn’t say that, did you?

Like like I that’s why I need the story. Like what what are you trying to do? What’s going on? Give me the full picture here, cause okay, if you’re gonna buy it, tear it down, okay, what’s your cost of construction? Now send me your construction statements, now let me look at that. Wait a second, on that cost of construction based on finished valuations, now the numbers make sense, right? One of my favorite stories, I had a client, she wants to build a like a yoga resort retreat kind of place. She inherited nineteen acres of land, and she wants to build a yoga retreat. It’s in what I’ll describe as Podunk, California, middle of nowhere. There’s nothing around it. I’m like, “Like what would attract yoga people to this place?” Like I’m looking at it in Google Maps and there’s nothing there, there’s no amenities, there’s nothing. It’s like, “Well, it’s attached to a hot springs.” “Hold on, it’s attached to a hot springs? That seems like a big deal.”

Okay, so walk me through… you have all this land, it’s free and clear, you’ve got a decent net worth. Do you know what it’s gonna cost you to to build on the land, like put in the roads and the sewers and the whatever? It’s like, “No, I have no idea.” So, okay, let’s start by getting bids. You don’t need… don’t spend any money, just go get bids. What does it take to put in the roads and the sewers and the whatever? Find your local people that do that. She came back about a month later and said, “Okay, it’s gonna cost me about two hundred fifty thousand dollars to put in all the infrastructure, just the roads and the sewers.” I said, “Okay, 250.” And she said, “It’s going to cost me another 250 to build one manufactured house. I’m going to do it manufactured housing, and to build one manufactured house is going to cost me 250.” “Okay, you’re at 500,000. What’s the value of that one house?” She said, “About 500,000.” I said, “Well, no, I can’t… I can’t do 500,000 to 500,000, right? But if you build four houses, right, I can take that 250, or five houses, I can take that 550 thousand dollars, the two hundred fifty thousand dollar infrastructure cost, divided by five houses. Now it’s fifty thousand dollars cost infrastructure per house. Each house is worth five hundred thousand. I can lend you the money to build five houses, I can’t lend you the money to build one.” She’s like, “Eric, that makes no sense.” It’s like, “Well, it actually does make a lot of sense from a money numbers standpoint. You’re analyzing it from a primary residence standpoint, I’m analyzing it from a cash flow standpoint. You can cash flow five of these, you can’t cash flow one.”

Joseph Crooms (12:14)
Yeah.

Eric Mitchell (12:14)
Right. And she’s like, “You’re telling me you’re gonna lend me five but won’t lend me one?” I said, “That’s what I’m telling you.” So we’re in the process… so she’s building five as we speak.

Joseph Crooms (12:21)
Wow. Eric, let me ask you this question: what’s been the key to keeping your machine running smoothly?

Eric Mitchell (12:27)
My team. My god, it’s my team. I have the best team in the history of ever. It’s all… it’s all about people, right? Like how do you… how do you inspire, motivate, reward, acknowledge your team on a daily, weekly, monthly, annual basis? And ’cause you can’t build anything on your own—I’ve never… I’ve never met a human that’s built anything significant by themselves.

Joseph Crooms (12:49)
Can you name me some of the key who some of your key team members and what they do?

Eric Mitchell (12:53)
Well, processors, loan coordinators, you know, loan officers as well on our team that that are helping people, underwriters, docs, even docs people, right? Like, “Hey, I need docs out today. Like today. Like no matter what, like I need you to sit down, I need on this file I need docs out today,” you know, and and watching them perform magic to to to solve problems. It’s… it’s brilliant, and I’m incredibly grateful every single day for…

Joseph Crooms (13:20)
Eric, how long have you been in business? And how long have you been the the the Chief Officer…

Eric Mitchell (13:22)
Twenty-seven years. One year. I’ve been I’ve been with Nexa one year.

Joseph Crooms (13:29)
…means here. And and so what would you say your book of business monthly is?

Eric Mitchell (13:33)
I’m closing about twenty-five to thirty loans a month. Now, a lot of that is through… we have a realtor partnership program where we have realtors that get licensed, and then they’re able to close loans and do real estate deals, but they don’t want to do the loans. They want… they want the loans in their name, they wanna get some sort of compensation ’cause they’re licensed. But so then myself, my team, we close all the loans for them, but it’s… it’s closing in the the realtor’s name. But it’s on average, just my personal book is about twenty-five to thirty a month.

Joseph Crooms (14:04)
Let me ask you another question, ’cause you took… you told me you’re in fifty states. That could be pretty… I I don’t wanna… yeah, because regulations are different. Can you sorta tell me what type of regulations look the same but are different?

Eric Mitchell (14:10)
Daunting. It’s daunting. Every state is different, that’s correct. Well, I’ll tell you that New York is the worst. I mean, New York is the toughest, the baddest, the worst state to try and do business in. Well, you know, the political answer to that is, you know, they have the most regulations, the hardest to to work through, right? The the truth is New York is still in New York, right? Like who’s handed degrees? And and so that increases costs, and a lot of people don’t want to do that, and and so their stuff slows down. And, you know, like if if you were starting from scratch, you said, “Hey, I want to go get a residential lending license in New York,” it’s two to three years. It’s that bad. And and so doing business in New York is pretty tough.

Joseph Crooms (15:39)
So so what you’re saying, I’ve been investing for a while, but I’ve won… now I want to branch out of New York. Why would it take me three years to get my foot grounded? Explain that to me.

Eric Mitchell (15:50)
Well, the New York regulators to to do a… to get a residential license in New York as a company from scratch, they just… that’s how long it takes them to look at your paperwork.

Joseph Crooms (16:00)
Alright, Eric, let’s shift this a little bit. Now every operator I know had a moment when things don’t go… things just get real.

Eric Mitchell (16:09)
Maybe you feel that we’ll stop. Yeah, yeah, we that that that loan that the the loan that made you cry yourself to sleep that night, yep.

Joseph Crooms (16:11)
Yeah, time to pivot fast. Share it with us, Eric.

Eric Mitchell (16:20)
I mean, my worst one was… I had a I had a… it was a husband and wife, they were roughly sixty years old. They were selling a house, buying another house. Their other house was already in a contract, it was gonna sell before, wasn’t a concern. They had about… honestly god, they had about fifteen million dollars in the bank cash—very wealthy, right? They had other retirement accounts on top of that, but like literally fifteen million dollars cash. Had beautiful credit, their tax returns were beautiful, everything was beautiful. And so I wrote them a pre-approval letter. They were gonna buy a two-million-dollar home, they’re gonna make a thirty percent down payment. Easy peasy. Here’s your pre-approval letter. It was one of the nicest files I’d ever seen.

And they go out shopping, they get under escrow, they open escrow, I get the contract. So I package the file, submit it to the underwriter. One and a half days later I get an email: Loan is denied. Not suspended. Not, hey, we need something. No, no, loan denied. We don’t want the loan. And so it took me about a day to get the underwriter on the phone. I was like, “I don’t know what file you’re looking at, but it ain’t the file that I submitted, because my file’s the nicest loan file I’ve ever seen. Like, what are you looking at?” She said, “Well, the majority of your income is coming from interest dividends on the tax returns.” I said, “Yeah, interest dividends, which is… hold on, your guidelines allow interest dividends to be used, number one. Number two, here’s all the cash that they get the interest dividends on, and they’ve got a two-year history of inclining, going up income. Like what are you looking at?” And he said, “Well, you didn’t read the subsection of that same clause. If you go… if you scroll down, you read the subsection: to be able to use that income, the borrowers must take at least two dividend draws per year. Your client takes one dividend draw per year, therefore I can’t use the income, therefore they don’t qualify.”

And I’m telling you, my brain almost broke. And so I had already locked the rate. Now I gotta pull the file, go to another bank. The rate’s gonna be a quarter to eighth rate higher. I have to call the borrowers, call the realtors, and try and explain. They didn’t believe me, they thought it was a bait and switch. So I lost the client, lost the realtor, all because of “I can’t use dividend incomes with this one underwriter unless they do at least two draws per year.” Like I d— I, honestly, I think I took like three days off work. Like immediately I just took three days off ’cause I was gonna I was gonna kill somebody. Yeah, it can it can go south on you fast.

Joseph Crooms (18:48)
What have you learned from that?

Eric Mitchell (18:49)
I don’t do any pre-approval letters without submitting to underwriting first. I haven’t since. Right? My under— my underwriter signs off on it before I write a pre-approval letter. Takes me one extra day. I’m gonna take the… I explain that to the borrower. Sometimes I even tell the story. Like, I can’t go through that trauma again, so for me to not kill myself, I need an extra day, and most of the time people give me the extra day.

Joseph Crooms (19:11)
That’s kind of stuff people don’t talk about enough. And honestly, it’s what separates folks who are just dabbling for those who stay in the game long term. Why are you still in the game, Eric?

Eric Mitchell (19:23)
I’m just passionate about helping people, right? I I mean, it’s easy to sell money—let’s start there. I mean, let’s just be honest and say it’s easy to sell money. That’s what I sell. And number two, I I just love helping people. I love solving problems, I’ve gotten really good at it. We use automation in a way that’s really, really effective to help our clients, and it just feels good, you know. I just closed a loan a few days ago for a veteran, and his parents were gonna co-sign, and he’s married, they just had a baby, and we’re on Zoom calls, and I I could tell by the look on his face while we’re on the Zoom calls he didn’t want his parents co-signing. It was bugging him, right? His mom was a little domineering and whatever, and so I… and so I called him after one of the Zoom calls. I said, “Am I correct that you don’t want your parents to co-sign, like if they didn’t have to?” He’s like, “Well, yeah, but they have to.” I was like, “Well, if we go conventional, sure. But you’re a veteran. Like if I went VA, you don’t need them to co-sign.” “It’s like why wouldn’t I go…” “I don’t know why you would… I mean, you’re making a twenty percent down payment. You don’t need to make a twenty percent down payment. But all the… all the more the stronger, but I’m telling you, like I can take them off the application if you want.” They just change the loan over to VA. He’s like, “Eric, get me that approval! Like, are you kidding me?” And so, yeah, we just closed that loan as a VA loan, and he was so ecstatic that he was able to do this on his own without his parents co-signing, you know, like it was… it was a good moment, you know.

Joseph Crooms (20:52)
I’m gonna ask you that same question, Eric. What have you found… what have you learned from that? What type of… has it adjusted your questions that you asked to try to, you know, you know, have you find out that deeper information? ‘Cause you share with me you you don’t really like doing that, but it’s needed, I see.

Eric Mitchell (21:09)
Yeah, invasive questions. There… so there’s a really good book that I read a while ago, Let’s Get Real or Let’s Not Play. And it’s all about when you… when you ask invasive questions, it lets the other person know that you actually care, right? Like like it’s hard to get there emotionally, but if you can, you know, like if if… if I’m doing a loan for a husband and wife with two kids and they’re buying a three-bedroom house, I’m gonna ask, like, “Are you guys done having kids?” ‘Cause if you’re not, you’re gonna outgrow this house, and let’s talk about an ARM instead of a thirty-year fixed, right? And yes, that’s an invasive question, but like I’m a fiduciary to you. Like I need to take care of you, I need to make sure that I’m I’m guiding you in ways that are going to save you money. And so I need to be able to ask questions that are that are personal. Now you can say, “I don’t want to answer that question,” that’s fine, but the… the more deep we can go, the better the solutions I can bring.

Joseph Crooms (22:02)
Sounds good. What are you focused on scaling on next?

Eric Mitchell (22:05)
AI. Everything’s about AI now. How fast… how fast can we implement it, how fast can we get our team to adopt it, and how easy can we make it for the consumer? Because the consumer’s not going to adopt AI the way we want them to—they’re just not going to. So we have to put it all on the back end on us so that the consumer doesn’t have to do anything other than answer a few simple questions.

Joseph Crooms (22:26)
That’s… that’s really big. To put that AI in… I like how you guys are utilizing it for your business. Why do you… what is your fear about the consumer instead of just having the AI ask questions?

Eric Mitchell (22:42)
Well, consumer experience, right? If the AI makes a mistake, then what, right? So we have to have stopgaps, and so that’s where the humans have to be able to jump in and and recognize that the AI’s gone off the rails. But the AI learns and gets better faster, and so when an AI does go off the rails, it happens once in that situation, and then they learn and then it that doesn’t happen again. So it’s… it’s good. In most situations, it’s when there’s complexity where AI stumbles a little bit, right? Somebody’s self-employed, their tax returns don’t say what they need to say to be able to get the loan, et cetera, et cetera. Or you’re trying to do an invest… like AI can’t keep up with investor loans as easily because there’s scope of work documents that have to be dealt with, there’s construction statements, there’s lack of tax returns, we’re looking at cash flow analysis of the subject property only… like AI’s not quite there yet. But on a primary residence, it’s it’s all very automated now. So we… we’ve already rolled out a touchless mortgage. Somebody can can go on their phone, get pre-approved without a hard credit pull in five, six minutes, and they’re done. You’re good to go.

Joseph Crooms (23:50)
When it comes to building relationships and growing your network, what’s made the biggest difference for you?

Eric Mitchell (23:54)
Listening. Just being a good listener. So when people are so focused on, you know, giving their elevator pitch, you know, “I’m this and I’m that and I’m good at this and I’m good at that,” and it may or may not be relevant to the person in front of you. And so what I’ve found is that if I can listen to the person in front of me, like really listen, and then ask probing questions based on the information they’re providing, with no personal agenda… like I’m not trying to sell you anything, I’m just trying to learn where your pain point is. I may or may not be a good solution for you, I don’t know, but let’s let’s find out. ‘Cause if I’m not a good solution for you, then maybe I can put you in the right direction.

Joseph Crooms (24:27)
Coming down to the last couple of questions, Eric. This is kind of how much is your business as residential versus commercial?

Eric Mitchell (24:33)
Probably eighty-five fifteen residential. You know, residential for investors though as well. Like the… like residential to me is anything one to four units. Five units or more, or for commercial use, is commercial. And so we’re probably fifteen percent commercial, eighty-five percent one to four units.

Joseph Crooms (24:51)
How would that translate to how much volume you’ll do monthly?

Eric Mitchell (24:54)
So as a company, we’re doing roughly… probably around three thousand transactions a month roughly as a company.

Joseph Crooms (25:02)
Yeah, both commercial and residential.

Eric Mitchell (25:05)
Yeah, all all combined, yep. And we’re certainly getting into the commercial a little bit more because of our abilities with automation. The commercial universe is not quite as automated as the residential world. There’s a lot more complexity to commercial transactions, but we feel confident that the level of of automation that we have, as we’re gonna be able to fix that in even in the commercial space. So we’re we’re delving into it pretty good. We’re rolling out a whole new platform for our loan officers here in the next probably three to four weeks, where our loan officers are going to start offering equipment leasing, receivables financing, business lines of credit, all fully automated, all in an AI ecosystem for for consumers.

Joseph Crooms (25:49)
Eric, thank you so very much. You can’t fake that relationships. Thank you for being transparent and so honest and and and answering the questions that I asked you. Before we wrapped up, if someone wanted to reach out, connect with you, maybe collaborate or even learn more about what you’re doing, what’s the best way to reach you, Eric?

Eric Mitchell (26:09)
Yeah, my website, eric-mitchell.com, right on my screen, E-R-I-C hyphen M-I-T-C-H-E-L-L dot com, has all my information, all my links, all my… everything’s right there.

Joseph Crooms (26:20)
Eric, somebody’s looking for a pen and they trying to get that information. Do you mind repeating it one more time?

Eric Mitchell (26:24)
Sure, it’s www.eric-mitchell.com.

Joseph Crooms (26:33)
Perfect. Well listen, I appreciate your time, your story, your philosophy, and also how you guys are scaling your business. We need more people in the space who are doing the… doing it the right way. Eric, thanks again for being here. And for those of you tuning in to Investor Fuel Real Estate Pros Podcast, we got… I know you you you you got a lot of value from this, a lot of information from this, and make sure you subscribe. We got more conversations coming from operators just like Eric Mitchell, who out there doing building real business, helping real people and communities. Thank you, Eric. We’ll see you on the next episode of Real Estate Pros Podcast. Eric, tell everybody we’ll see him later.

Eric Mitchell (27:16)
See you later.