Skip to main content

How to Be the Bank With Private Money Lending | Build Passive Income Through Real Estate

Subscribe via:

Show Summary

In this conversation, Dylan Silver interviews Dave and Josh Stech, private lenders who transitioned from real estate investing to lending. They discuss their journey, the advantages of private lending, and the importance of building relationships with borrowers. The Stechs emphasize the need for a mindset shift to think like a bank, focusing on risk management and capital deployment. They also explore the differences between direct and indirect lending, offering insights and resources for aspiring lenders.

Resources and Links from this show:

  • Listen to the Audio Version of this Episode

    Investor Fuel Show Transcript:

    Dave Stech (00:00)
    The core belief.

    that people have to unlearn is I need to protect my money.

    because it’s a defensive posture and it’s rooted in scarcity. When you think about a bank, the big ones that have the high rises, they don’t protect money, they deploy money. They systematically do it with the right structure, the right underwriting with asymmetric risk control. They don’t ask, is this safe? They ask, is it structured properly so that we make sure that we get our money back and get paid along the way?

    Dylan Silver (02:04)
    Hey, folks, welcome back to the show. Today’s guests, Dave and Josh Stech, our investors and lenders helping folks make private money lending part of their wealth strategy. You can find them online at JustBeTheBank.com. Gents, thanks for joining us today.

    Dave Stech (02:21)
    Great to be here. Thank you.

    Josh Stech (02:23)
    Yeah, thanks for having us Dylan.

    Dylan Silver (02:23)
    I’d

    to start off at the top by asking both of how you got started in the lending space.

    Dave Stech (02:33)
    Yeah, that’s a great question. mean, we didn’t have any plan to be private lenders. ⁓

    We were in the fix and flip business. We’d done 73 flips in 14 months in Las Vegas, and I thought we were going to kill ourselves. And then it turned out that we got killed because they passed a moratorium in Las Vegas where they prohibited foreclosures back during the global financial crisis. We pivoted into vacation rentals, and then we got a cease and desist letter saying, no, you’re a bad person because we’ve got a hotel lobby.

    that says that you can’t rent your home for less than 30 days. So we have these two uber successful models that are really working well and the government literally pulled the rug out from under. ⁓

    So we were at a mastermind telling this story and a guy by the name of Mike from Boston said, hey, Dave, since you just exited those two businesses, why don’t you lend me the money that you’ve got, you know, sitting in the bank? And I said, Mike, I don’t even know what you’re talking about. And the next thing you know, we did our first private loan to Mike. It was a very short term loan. And when we got paid back, I turned to Josh and I said,

    God,

    somebody’s going to throw us in jail. I can’t believe it’s this easy. We don’t have to do the work. You know, in real estate, there are six F’s. You got to find it, figure it, fund it, fix it, fill it, and flip it. Now all we have to do is one. How cool is that? Well, Josh was in the same room, and he kind of took it to a new level.

    Dylan Silver (04:12)
    Now, specifically, when we talk about lending, I think you mentioned some of the other segments of real estate that you were involved in, right? know, fix and flipping being a big one that a lot of people, because they’ll see it everywhere, are highly interested in. But whether it’s regulation or competition, it can be tricky to do fix and flip. So you mentioned, you know, the returns. Was it the returns that stood out? Was it, you know, capital preservation?

    or the ability to stay resilient through different market cycles. Was there one piece that stood out to you about lending?

    Josh Stech (05:35)
    I think what we noticed as a property investor was that there was definitely an inherent ceiling on the business. It was hard to get it super, super big. The scalability factor just wasn’t there. You there was always either a constraint on finding inventory or your contractors had constraints. ⁓ Something was causing that pipeline, the flow of fix and flips to slow down. And it was, was

    making it difficult for Dave and I to get out of the business and work on it and not in it. And I think what we found with private lending was that there wasn’t as much of a ceiling. I mean, if you find really great repeat borrowers, if you set up some basic software tools to, you know, automate it and some good vendor relationships on the servicing side, it can really, you can scale it almost as much as you want and you can do it from anywhere. So I think the scalability and the time and the

    geographic freedom of running a backpack business where we don’t have to be on the ground managing contractors and in a home. We could do this, you know, virtually from a backpack as long as we have a cell phone and a computer. I think that’s really what attracted us.

    Dylan Silver (06:43)
    I wanna ask you specifically if I can. Go ahead.

    Dave Stech (06:43)
    If there’s one thing I would add, I would just add, Dylan,

    the to return ratio. Think about the effort to return. When you don’t have to do six Fs, you’ve just got to write a check and get a bigger one back. I mean, that’s like cheating only legal.

    Dylan Silver (07:01)
    It’s true. It’s true. I want to ask you specifically, you mentioned the geographic freedom for folks who are thinking about getting started in the lending space. Should they be focusing on, you know, low hanging fruit, their backyard, the city, the urban sprawl that surrounds them? Or can they be looking at deals across state lines or in areas that they may not have, you know, granular familiarity with?

    Josh Stech (07:27)
    Yeah, I mean, I’ll grab that one. If you’re just getting started or even if you’re trying to scale from, you know, 10 loans a year to 50 or 60, my personal recommendation and the approach that Dave and I took was, you know, start narrow geographically. Chances are you’re going to have better luck building relationships with borrowers. Look, this is a relationship business, especially when you are competing against institutional sources of capital that are always going to be less expensive than you.

    your competitive differentiator is often the relationship and your ability to lean into that relationship with flexibility around your loan terms, your closing timelines, your draw process. So I think that the geographic focus is a really prudent one early on. And until you get to 50 or 60 loans, you don’t really have to go much beyond your backyard is what we learned.

    Dylan Silver (08:18)
    I would like to ask you specifically and bringing it to the listener for folks who are intrigued by, you know, the be the bank mindset, but don’t want the hype false guarantees or anything that, you know, might potentially leave them ⁓ awry, right? They don’t want to their day job. What does a smart, realistic first step look like for them?

    Josh Stech (08:43)
    Yeah. Pops, you want to grab that?

    Dave Stech (08:46)
    Yeah, mean, for me, it’s the last word is really the key. How do you do this the right way? ⁓ You know, there’s risk in any business and private lending is no different.

    And there are countless people who are doing it the wrong way. So we created a workshop called Just Be the Bank because several of our friends wanted to be a private lender. They wanted to write a check and get a bigger one back. They didn’t want to be, you know, a landlord. They didn’t want tenants. They didn’t want to operate an adult daycare basically. So we’ve been teaching those that are close to us and now by extension, those that we’re meeting like you, kind of the pitfalls that we experienced.

    over the last 15 years, and how to identify and mitigate risk, how to structure deals and paper them up to protect your downside. It’s not just about return on capital, it’s return of capital. And then we created the mother of all software.

    programs that allows for us to be able to help students from a geographic standpoint find the people that they want as borrowers and ultimately build their business in a faster way with better borrowers. Because our thesis, our family office mantra, is to do fewer bigger things with fewer better people through fewer deeper relationships. You just don’t need that many people in your life. You just need the right people.

    And that’s what we want at that workshop.

    Dylan Silver (10:14)
    Yeah.

    I would like to get a little bit granular here if we can and look at building those relationships, right? So you mentioned if you have a couple relationships that those can really be the bulk of your business. Is this something where people can be intentional about cultivating, let’s say that network of investors that are around them geographically, like starting in their backyard? Or do people need to be, you know, attending conversations like this? ⁓

    over Zoom and so forth, what would be your approach to building those relationships?

    Josh Stech (11:25)
    Yeah, I’ll take that one. ⁓ You know, we, was fortunate after my experience when Dave and I built our first private lending business, just he and I, ⁓ to then move on and start a business called Lending Home, which is now Kiavi, which really grew into becoming the largest lender to property investors in the country. That was a really incredible experience. And one thing that I think that really taught me was how do you find borrowers effectively, efficiently? How do you do it the right way?

    And ⁓ we ended up building something for our Just Be the Bank students of now whom we’ve educated over 500 people how to be the bank the right way. We created a tool for them to find borrowers in their own backyard. It’s wonderful because as I’m sure you know, Dylan, real estate is a matter of public record. You can find all the transactions you want.

    ⁓ The key is to be able to visualize them in a simple software tool. That’s what we created and then really get the contact information to then go and reach out and say hey John I see that you’ve done seven deals in the last 12 months our software tells you which lenders they used for the capital

    It tells you how much they bought the home for how much they sold it for how long they held it. It gives you all the data points you would need to have a really informed good intelligent conversation with that borrower John. So yeah I would say again I instead of going kind of spray and pray masses of asses

    go network with everybody and help you find somebody. What we found is you use software use data to pinpoint who you really want.

    Dylan Silver (12:50)
    Right.

    Josh Stech (12:55)
    and then go after them that way. And that’s what we have a tool called Lender Flow Pro that we created.

    Dylan Silver (13:01)
    I would like to pivot a bit here and ask you specifically about,

    if there’s one core belief that people must unlearn to stop playing defense with money and maybe a mindset that they need to adopt to start thinking like the bank, what is it?

    Dave Stech (13:18)
    Well, I would say this, at least in my case.

    I grew up in a trailer park for the first 20 % of my life. And you can imagine starting there, we never expected, or at least I never expected to be a sizable family office. I didn’t expect my sons to outgrow me and yet Josh clearly is. So I think the message there is unlearn scarcity. Now that’s heard, people hear about that all the time and it sounds pretty cliche, but think about this. The core belief.

    that people have to unlearn is I need to protect my money.

    because it’s a defensive posture and it’s rooted in scarcity. When you think about a bank, the big ones that have the high rises, they don’t protect money, they deploy money. They systematically do it with the right structure, the right underwriting with asymmetric risk control. They don’t ask, is this safe? They ask, is it structured properly so that we make sure that we get our money back and get paid along the way?

    So when you think about when Josh and I did our first loan,

    didn’t have an instructor, we didn’t have a coach.

    We made mistakes. We went from hoping to thinking like a bank. We thought about the collateral. We thought about loan to value. We thought about what’s the exit that the flipper is going to have. What’s the downside of everything goes wrong. So defense and thinking that way isn’t hoarding cash. Defense is structuring a deal. So you win every time. Even when things don’t go perfectly, we win. I just went through my first foreclosure and made more money as the

    new owner of the real estate that I would have as the lender because I underwrote it properly and I had plenty of cushion.

    So my perspective, Dylan, is if you want to stop playing defense with money, you got to stop asking, how do I avoid losing it and start asking, how do I get paid first and how do I get protected if it fails and make more money if I do fail than I would have if I won the way I thought I was going to. So bottom line is think like a bank, get paid passively on money that you work so hard to actively make and shift everything by thinking differently.

    Dylan Silver (16:17)
    a follow up question and maybe peeling back a layer on the onion here. If we could give away a gold nugget for our audience. Folks are looking at getting into lending and selfishly I have this question as well. I’ve spoken with so many lenders. I hear about direct lending and I hear about indirect lending. For myself and for folks who might not be familiar, what’s the difference there and is there a preferred way that you would advise folks to get started?

    Dave Stech (16:45)
    Josh, I’ll let you take it.

    Josh Stech (16:48)
    Sure, yeah. There are, guess, a lot of terms that kind of float around out there. ⁓ I’ll just describe some of the different ways you could get involved and whether they’re direct or indirect, kind of let everybody arrive at their own conclusion. mean, ⁓ you can find individual borrowers who need capital and you can provide that capital directly to them and you can secure yourself through a variety of different legal instruments. So that’s one way. Another way would be

    You find someone who needs money and instead of deploying it to them on your own from your own money or from a fund that you manage, you could then go find somebody, another lender who has a great loan product, become a broker for that lender and essentially connect the two and take a fee for doing it. Now you, aren’t going to make as much as if you were providing the money directly yourself. ⁓ but it also requires that you don’t need money. ⁓ the key there with the brokering situation is that you

    you learn how to maintain control of the borrower relationship because if all you’re doing is connecting a borrower with a lender once and then you’re out of the middle, your job is going to really, really be tough because you’re not going to have that repeat customer business that you would if you were lending money directly. So looking for a lender who will give you broker protections, who will give you

    the honor that relationship that you established with the borrower for at least some period of time, if not indefinitely, that is a really, really important piece of it. And there’s also nuance in how you get that control in terms of whose logo is on the paperwork, whose.

    Name is on the closing statement. Is it the lender or is it yours as a broker? So I think there’s a lot to consider between brokering and doing it yourself. ⁓ One’s a lot less capital intensive, brokering. It’s easier to get off the ground. But you do, you have to make sure you maintain control, otherwise you’re going to lose the customers that you’re working so hard to get.

    Dylan Silver (18:44)
    Yeah, I think that that’s a great way to break it down, right? Because it’s not necessarily like one is better or worse. They’re just different. And it may be, you know, what your strategy is and which one works better for you. We are coming up on time here, though, gents, any new projects that you’re working on and then as well, what’s the best way for folks to get in contact with you or your team?

    Josh Stech (19:05)
    Yeah, yeah, I mean, I’ll grab that one. The project that I think for everyone listening here is most interesting and something that, you can, if you’re looking to become the bank, you don’t just don’t know where to get started, or maybe you have gotten started, and you got your, you know, you got your wrist slap once or twice on doing it the wrong way. If that’s where you are, and what you’re thinking about doing, you know, I would suggest you find someone

    who has seen around the corner, who’s done this a lot more than you have, who’s seen all of the different ways you can get caught up in this business on the wrong way. And go ask them to teach it to you the right way and to compress years of learning down into what we’ve done, days of learning at Just Be the Bank. So, you know, what we have really to offer listeners is if you go to justbethebank.com forward slash I F for investor fuel, I F.

    you go to justbethebank.com forward slash if we have white papers that will give you they give you a bit of a sense right? How could you get started in this business? We’ll give you a white paper on how to build relationships better, faster. We’ll even give you access to a few of the webinars that we do every quarter on the state of the union of the real estate market, and kind of how to best take advantage of it. So that’s our gift to the listeners. And I think starting there, that’ll give you a sense for whether we as a family which

    I think we’re the most successful family in the country in private lending. If we’re the right ones to continue with you on your journey of education in private lending, we’d love to. And our two and a half day workshop could be just the thing you’re looking for.

    Dylan Silver (20:42)
    Gents, thank you so much for coming on the show here today. Thanks for taking the time.

    Dave Stech (20:47)
    And to you, Dylan, thanks for having us.

    Josh Stech (20:49)
    Thanks.

Tags:

Share via
Facebook
X (Twitter)
LinkedIn
Mix
Pinterest
Tumblr
Skype
Buffer
Pocket
VKontakte
Parler
Xing
Reddit
Line
Flipboard
MySpace
Delicious
Amazon
Digg
Evernote
Blogger
LiveJournal
Baidu
MeWe
NewsVine
Yummly
Yahoo
WhatsApp
Viber
SMS
Telegram
Facebook Messenger
Like
Email
Print
Copy Link
Copy link
CopyCopied