How to Use HELOCs & DSCR Loans to Build Wealth

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Show Summary

In this conversation, Scott Richerson shares his journey into the real estate and private money lending space, discussing the importance of understanding market dynamics, the rise of DSCR loans, and strategies for successful real estate investment in Texas. He emphasizes the significance of buying properties correctly and the need for investors to be adaptable in a changing market.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Scott Richerson’s Website
    • Scott Richerson on Facebook
    • Scott Richerson’s Phone Number: (830)790-7916

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Scott Richerson (00:00)
  And so we take those skills and experience that we have in the fix and flip space. We actually have the ability to help brand new people who want to get involved in the industry, who want to find the profitability in the fix and flip space. We actually have the ability and the skill set now to help them, coach them, lead them through the process of figuring out not only how to find the project, how to do the scope of work and do the estimates, and then come alongside them with some hard money loans.

  loans, some HELOC loans that they may need to raise the capital for the down payment ⁓ and the investment capital and then to be able to profit of

  Dylan Silver (02:07)
  Hey folks, welcome back to the show. Today’s guest is based in New Braunfels, Texas. He’s a private money lender and provides solutions for real estate investors, including DSCR loans. And he’s an active investor as well. Please welcome Scott Richerson. Scott, welcome to the show.

  Scott Richerson (02:26)
  Good morning, Dylan. How are you?

  Dylan Silver (02:28)
  doing well, doing well, it’s a great day here in Santo Domingo. ⁓ I lived in Texas for a handful of years before moving out here, so I always like to have fellow Texans on the show here. But I like to start off at the top, Scott, by asking guests how they got into the real estate space.

  Scott Richerson (02:47)
  Yeah, a couple different ways. ⁓ One, my wife after 27 years decided she, of nursing, decided she didn’t want to be a nurse anymore. And so it…

  forced her to look at different spots, different spaces, and what she wanted to do. One of our friends is a mortgage broker, is now our business partner in the brokerage firm. And so she began a year or so ago, a little bit over a year ago, being mortgage loan officer, and then a partnership in the brokerage came. And then as all of that occurred, we were looking at what’s next for us over the long haul.

  realized real estate was probably the right space for us. And so I got involved, I got licensed, and then obviously our two LLCs in the brokerage firm became a really viable source of being able to expand into different offerings ⁓ to provide solutions really for the real estate space ⁓ in hard money lending, DSCR stuff, residential lending, commercial lending, things of that nature. So it really is really kind of turned into something that

  I don’t think any of us really anticipated. Then on top of that, my brother has been in the real estate fix and flip space for about 15 years. He’s much younger than I am. That’s what got us involved in the investment side is he tied us together with our business partner out of Pennsylvania where we do fix and flips. We do three or four fix and flips in Colorado a year. That became part of what we do.

  Dylan Silver (04:02)
  There it is.

  Scott Richerson (04:22)
  And so we take those skills and experience that we have in the fix and flip space. We actually have the ability to help brand new people who want to get involved in the industry, who want to find the profitability in the fix and flip space. We actually have the ability and the skill set now to help them, coach them, lead them through the process of figuring out not only how to find the project, ⁓ how to ⁓ do the scope of work and do the estimates, and then come alongside them with some hard money loans.

  loans, some HELOC loans that they may need to raise the capital for the down payment ⁓ and the investment capital and then to be able to profit of

  mean, I have a client just today that I’m working with to get his first draw off of his hard money loan for his rehab of a house that he’s doing just up the street in San Marcos. Blue collar guy, 50 grand a year kind of guy and he’s got the potential to make a year’s worth of income in one deal. So, really trying to help people. ⁓

  Dylan Silver (06:00)
  Yeah.

  Scott Richerson (06:07)
  just get into the space where it can be life changing in a lot of ways.

  Dylan Silver (06:11)
  that would make me fall in love with real estate is if I got my annual income in one deal. I want to ask you about getting into the private money space and business purpose loans coming from outside of the real estate space and making a pivot. How did you decide to get into the lending side? Was it the influence of your brother? Did you have other folks telling you lending is really the end game or how did you decide I’m gonna pivot to lending?

  Scott Richerson (06:41)
  Well, ⁓ in both the fix and flip space and the business space, I mean, I…

  My background is really about looking at equations. In a fix and flip deal, you don’t buy a house, you buy an equation. That equation has margin and turn rate to it. When you think about the volume involved in lending and the commission structure involved in lending, it’s all about turn rate and margin. Versus being an agent to where you’ve got maybe eight or 10, maybe 15. If you’re knocking the ball off the cover, you do 15 deals a year, maybe 20 deals

  year if you’re like killing it. Well in lending you you can you want to ⁓ do 160 deals a year right you want to do a hundred deals a year. ⁓

  you know, you can do four, five, 10 loans a week. so to grow, it’s much easier to scale that part of the real estate space. And so when you add to that, the variety of tools that private money, the investment money, ⁓ things of that nature bring to the table, then you can provide a holistic solution to multiple problems versus.

  Dylan Silver (07:54)
  Yeah.

  Scott Richerson (07:55)
  This

  is military town USA. So, we have lots of soldiers buying VA loans. Well, if we were just the one trick pony of VA loans, ⁓ we’d be limited to that aspect. so, lending just gives us a broader spectrum of being able to come alongside people, realize their real estate dreams, whether that’s investment or ownership or both, and be able to provide real solutions for real people.

  Dylan Silver (08:23)
  For me, it was pretty clear when I was working with single family home fix and flippers and we would have a deal as a wholesaler myself where it was looking like everything was tied up and about to close and then a handful of days before closing or even the day before closing, the lender would say, we need this, we need this and it would throw everybody into kind of a frenzy.

  And I had that happen enough times where I realized that the lending portion of all deals as a realtor, but also as a wholesaler is the most important part of the deal. Without the financial backing, the deal is not a deal at all. And so even recently I’ve thought about, maybe I should get involved in the lending side, because that’s really the crux of everything. People even, you know, when they’re looking at investment properties or when they’re looking at their forever home,

  The first thing a realtor or anybody will ask for is do you have financing set up? And so to me, it is the end game. I wanna ask you about some of the specifics in this space and I wanna get a little bit granular, maybe give away some of the gold here, but not all of it. DSCR is now very, very, very popular. It seems like everybody is doing DSCR from folks who…

  catered towards investors and fix and flippers, but also you’ve got a lot of DSCR, I see it happening in conventional as well. They’ve added that product. Do you see this expansion as well in your business? Are you seeing lots of people asking for these types of creative financing setups?

  Scott Richerson (10:40)
  Well, we do and we find it in a very interesting slot. We find it in the Section 8 housing, believe it or not.

  A guy goes to the government websites to figure out what section eight reimbursements are for a particular region, goes and finds several single family homes that he wants to put section eight housing in, arranges a one to one or 1.2, 1.25 ratio of DSCR loans and ends up having the government pay four, five, six, seven, and sometimes $800 positive cashflow a month on these homes.

  ⁓ And ⁓ it’s a very interesting business model. I’m a little leery of it because I think there’s going to be a day when the government goes, you know, we’re just not going to do that much of that anymore. ⁓ But maybe there’s not. Maybe that’s just an everlasting kind of thing. I don’t know. It’s weird down here in Texas. We’ve seen

  Because of the drought, I live pretty close to Canyon Lake, which is about 10 miles away, and it’s a huge DSCR environment. There’s lots of Airbnb rentals going around. ⁓ There’s actually a 72 unit ⁓ project that’s for sale 12 miles from here for $8.2 million. And it’s got DSCR capabilities written all over it. The problem that you have with that is we’ve been in a drought. So the lake is up until three weeks ago, and the floods happened down here. ⁓

  it was 65, 60 % at level, like you couldn’t even get a boat on it. All the boat ramps were closed. so like that Airbnb space, the bottom fell out of it. And so it’s kind of like, you know, what do we do there? And so we’ve seen a lot of investors revert back to single family rentals, quad rentals, you know, duplexes and quadplexes and things of that nature. So we’ve seen a lot of that shift.

  Dylan Silver (12:39)
  I’m familiar with Canyon Lake.

  I’ve been to Canyon Lake several times for deals and I remember going to the lake, wanted to check it out and yeah, it wasn’t much of ⁓ a lake. When was the last time Canyon Lake was Canyon Lake?

  Scott Richerson (12:54)
  Well, the last time it was full was about seven years ago when it was full and it’s slowly been deep. I mean, it got to 40, 42 % capacity just this last year in 2024. so with the floods upstream of the Guadalupe River and it forced a whole bunch of water down and raised it up to about, it’s currently sits at about 65%, 60, 70 % capacity, but it’s still got a long ways to go. And so we need some rain.

  Dylan Silver (13:19)
  It’s got a long ways to go.

  Scott Richerson (13:22)
  It’s got a long ways to go. We need some rain. you know, the rain and the lake water and the river water is what brings the tourists, which is what drives Airbnb stuff down here. you know, until those things are corrected, ⁓ you know, until God sees fit to bring more rain, we’re going ⁓ to be shifting from Airbnb space ⁓ into ⁓ the small multifamily DSCR stuff. yeah.

  Dylan Silver (13:29)
  Right.

  Speaking

  of water, you’re in a great area for people coming and tourism to a certain degree. New Braunfels, Texas is an unbelievable area. You’ve got, what is it called, Floating the River right in New Braunfels. It’s really a great area.

  Scott Richerson (14:02)
  Yep.

  Yeah, it is. And as long as the river’s flowing, everything’s good. But they’re spring fed, and so the ⁓ rivers. so a lot of times, if the lake’s low, they’re going to shut the lower Guadalupe down. The Camau River, which is the shortest river in Texas, it’s only two miles long, is spring fed. And this last year, the spring quit producing water twice, and so the river almost went dry. And so it was crazy.

  Dylan Silver (14:32)
  did not know that that was a thing. I know everybody likes to float the river and that’s really a whole day activity. I wanna ask you a little bit about some of the different strategies. We both have been active in Texas. You’re currently there and I was living there over the last several years. When folks are looking at getting into the real estate space, they’re looking at short term rentals, they’re looking at fix and flip, they’re looking at long term, you’ve got corporate housing.

  You mentioned that your wife was a nurse for many, years. There’s a lot of people who are catering towards ⁓ travel, business people and medical professionals. And you’re involved, I’m sure, in financing for lots of different deals and across different asset classes. Do you have any feedback for folks who may be thinking about getting into Texas real estate and are trying to choose, you know, a, location, whether it’s

  New Braunful, San Antonio, Houston, Dallas, Austin, but also what type of asset they’d like to own, be it ⁓ a fix and flip or a short term rental or long term or corporate housing or maybe multifamily.

  Scott Richerson (16:23)
  Yeah, so from a location standpoint, population density is important. There’s spaces in Texas, and I’m a native Texan, there’s spaces in Texas where you just, like, there’s just not enough people and there’s just not enough.

  There’s not enough transition to be successful. There’s no draw. One of the things we do is we go down to Dilley, Texas where the prisoner, we go to prison and take our ministries into prison as a local church. And the reality is there ain’t nothing happening in Dilley, Texas. So unless you’re going to get into buy and hold and you’re going to do rental properties in Dilley, Texas, there ain’t nothing else to do down there. so nobody’s wanting to move to Dilley and there’s no professionals coming into Dilley, there’s no doctors coming into

  You don’t have ⁓ professional short-term rentals going on there. It’s really limited. If you’re to look at the broader spectrum of real estate investment, you need to get into a place that’s got population density. Any of the big cities or the surrounding cities. New Brumfields is actually perfect. It’s close to San Antonio. It’s close to Austin. in between. It draws a lot of people here. A place like New Brumfields, a place like San Antonio, Houston, all the surrounding areas of Houston, ⁓

  Dylan Silver (17:34)
  Yeah.

  Scott Richerson (17:43)
  And again, you want to pick those that are economically ⁓ sustainable or transitional. so San Marcos is just a little place north. It’s ⁓ somewhat of an impoverished city, but at the end of the day, there’s lots of fix and flip opportunities there. How to choose which way you go.

  is going to come down to two things. I think two things. One is risk tolerance. If you have a high tolerance for risk, then you have the personality and you have the ability to sustain through some uncomfortable aspects of fix and flip or, you know, multifamily kind of stuff. If you need something that’s less risky, again, turn to the mathematics of a buy and hold.

  long-term rental.

  you know, solid where you’re buying the property right. You have to remember in real estate, you don’t make the money when you sell it. You actually make the money when you buy the property, whether that’s in a fix and flip or in a long term hold. Your profitability portion of that transaction, whether that’s a long term transaction or short term transaction. When I say short term, you know, we do, we try to do our fix and flips between 100 and 120 days between first close and selling close. We try to get those done in 120 days.

  And so you’re talking about three months.

  Dylan Silver (19:07)
  Yeah.

  Scott Richerson (19:08)
  I mean the reality is that if you can handle the turbulence of that and you’re okay with money being at risk and some fear factor coming in about whether the deal is going to close or sell or all those kind of things or whether you’re going to go over budget on your rehab budget, this, that, and the other, then know, fix and flip might be for you. The second aspect of deciding what sector to get involved in is your access to capital. You need capital to get in the space.

  You don’t need necessarily cash. You can borrow that as you go through, but you’re going to need access to capital, whether that’s your retirement capital, whether that’s equity in your primary residence, whether that is something you got tied up in a 401k and needed to flip that to a self-directed 401k, anything of that nature. You’ve got to have access to capital. so one of the solutions that we provide ⁓ new investors, our first time investors, is getting access to capital.

  access

  to capital through us is done either through a HELOC or HELOAN where they access the equity in their primary residence to take that and to go into the real estate market. ⁓ Hard money lenders, DSCR lenders, they don’t care where your down payment is coming from. They don’t care you got it out of your primary residency. So ⁓ go. If you’re going to do a long-term rental, then just be okay understanding that you’re going to make the money in the real estate when you purchase.

  the asset, not when you sell it, right? You have to buy the asset correctly. You have to evaluate it and you have to buy it right. You can’t pay too much for it and get away with it. That’s the one thing about real estate on either spectrum, whether you’re in DSCR, long-term rentals, you’re in multifamily or whether you’re in fixer flip, it doesn’t matter.

  Dylan Silver (20:38)
  Okay.

  Scott Richerson (20:59)
  If you make the mistake of paying too much, you’re in trouble. And so you have to buy the property. You have to evaluate the property ⁓ correctly and you have to purchase the asset at the beginning of your process correctly. you do that, you’re going to make a lot of money. If you don’t, you’re going to lose a lot. You could lose a lot of money or at the minimum frustrate yourself in a break even situation, which nobody does this to break even.

  Dylan Silver (21:03)
  Yeah.

  Right,

  Scott Richerson (21:26)
  Or at least I haven’t

  Dylan Silver (21:27)
  no question.

  Scott Richerson (21:29)
  met anybody that wants to do it to break even. Let’s put it that way.

  Dylan Silver (21:32)
  Otherwise, yeah, you just put your money into Wall Street. You know, one of the things that you mentioned is the money’s made on the buy. And then we also were talking about the Section 8 and how long that those type of models will be viable for, especially as it relates to some types of alternative financing. And I think one of the hallmarks of an effective real estate operator, not just for a year or two years or five years, but 10, 15, 20 years plus, is the ability to

  buy correctly and also pivot. I had an investor on this show tell me, you know, you’ve gotta stand tall, but you’ve also gotta be able to keep your knees slightly bent so that you can pivot when you need to. And I think that’s so true. mean, whether it’s going from being a wholesaler to a fix and flip or to long-term housing or into private money, which is this progression that I’ve seen a lot of people take, you do have to have that ability to pivot.

  We are coming up on time here though Scott. Where can folks go if maybe they’re looking for some private capital or they may have a deal that they’d like you to look at or if they’re in ⁓ the greater New Braunfels area and they’d like to reach out to you?

  Scott Richerson (22:43)
  Yeah, you can reach us ⁓ one of three ways. Just email us at scott at upwardlendinghillcountry.com, scott at upwardlendinghillcountry.com. can go to our website, upwardlendinghillcountry.com, or ⁓ man, you can just call me on the cell phone, 830-730-7916. We’d be glad to just have a conversation about what your hopes and dreams are and see if we can get you started going down the right path.

  Dylan Silver (23:08)
  Scott, thank you so much for coming on the show here today.

  Scott Richerson (23:11)
  You bet, Dylan. Thanks for having us.